Cotton prices in India likely to fall in 2017-18: Crisil

Cotton prices in India are likely to decline to Rs 105-110 per kg in cotton season (CS) 2017-18, from Rs 117 per kg in last season, due to an expected 11 per cent rise in cotton production to 375 lakh bales, according to a report by Crisil Research. The acreage has also increased as farmers have switched back to cotton after last season’s price surge.

The area under cotton cultivation is estimated to have increased by 19 per cent to 123 lakh hectares compared with 103 lakh hectares in CS 2016-17. It is also 7 per cent higher than the 5-year average of 115 lakh hectares, a news agency reported citing the Crisil report.

However, erratic monsoon rains and anticipated pest-related losses may result in a fall in overall by 7 per cent to 520 kg per hectare, Crisil said.

A rise in cotton production in CS 2017-18 will immensely benefit spinners in the last two quarters of this fiscal. The falling cotton prices will also improve prospects for cotton yarn exporters in the second half of this fiscal.

The second quarter of fiscal 2018 was the least profitable in five years for cotton yarn mills as their margins touched 10.3 per cent as compared with a peak of 18.8 per cent in the corresponding quarter of fiscal 2014.

Nearly 70 per cent of the cotton produced in CS 2017-18 is expected to be used in the next financial year by spinners, giving confidence that raw material costs would remain low in fiscal 2019, Crisil said.

While domestic demand will be supported by a consumption recovery for the Indian economy, a better economic outlook for most textile trade partners and restoration of export incentives would also support higher growth and firm up yarn prices next fiscal, the Crisil report added.