fe Bureau New Delhi, March 12
The cotton traders’ body on Tuesday said that the 10% rise in the fibre's price in the past six months is “very normal” as that global prices have gone up by around 20% during the period. “The prices of cotton are also increasing because of an increase in yarn prices.
The demand for yarn has been strong in the international market during the last few months and (textile) mills have been making good profits,” Cotton Association Of India president Dhiren N Sheth said in a statement.
“The gap in international and domestic prices of cotton is narrowing, which is a good sign and in the interest of farmers,” he added. He demanded that the state-run Cotton Corporation of India (CCI) offload stocks to the highest bidder and atan appropriate time to maximise returns for itself and cut losses to the exchequer.
Government agencies usually buy cotton at the minimum support prices and sell the stock later at market rates. Losses on account of the procurement operations are reimbursed by the government. Sheth's statement came a week after the Confederation Of Indian Textile Industry (CITI) had sought the offloading of cotton stocks procured by state-run agencies, to ease domestic prices.
In a letter to textile and commerce minister Anand Sharma, CITI chairman SV Arumugam had said cotton prices in the domestic market had “increased steeply because of an artificial shortage of cotton in the market, which is created partly by hoarding of cotton
by traders, and partly by non-release of procured cotton by the CCI and other procurement agencies".
The CAI said an analysis of the export price data, compiled by the Direcorate General Of Foreign Trade, reveals the ratio between the average rate of yarn shipped this year and that of cotton is much higher in 2012-13 than a year before.
“The increase in cotton prices now has resulted in the narrowing down of the margins being enjoyed by the Mills so far although the mills continue to have healthy margins.
In anticipation of the increase in cotton prices, Several mills are stocking cotton to cater to their requirement for the next four to six months. Going by the logic given by the certain sector that the traders are indulging in the hoarding of cotton, the stocking of cotton by mills will also amount to hoarding,”Sheth said.
Executives at textile mills, however, were quick to point out that while the industry, which employs millions and contributes immensely to export growth, buys cotton for consumption, traders' sole aim is to maximize profits for themselves out of a surge in prices. Sheth said most of the traders have taken care of price risks of their purchases by using risk management tools and it is only the un hedged position without any corresponding yarn or fabric sale like that of the mill sector which amounts to speculation.
CITI's Arumugam had argued in the letter that “holding on to the procured cotton would help only traders who are also hoarding cotton purchased from the farmers earliest at low prices... a substantial part of the crop has already arrived in the market and, therefore, an increase in cotton prices now will help farmers only marginally”. (Source: Financial Express)