Having inked contracts at much higher rates earlier, importers here are
staring at a loss
The continued stand-off between the US and China over trade tariffs has
created uncertainty in the Indian cotton market. After international cotton
prices slipped by over 16 per cent over the past month, Indian cotton
importers are staring at a loss and are looking to rework import contracts.
Even as trade sources revealed that some import contracts, which were made
at a high price of about 85 cents, may get cancelled or reworked, the
uncertainty over a possible trade truce between the US and China is keeping
them jittery.According to trade estimates, so far about 18 lakh bales of cotton import
contracts have been made of which shipments for about 7 lakh bales have
already arrived.
“Import contracts for the remaining 11 lakh bales were entered into at a very
high rates of about 80-85 cents. The prices have corrected to about 69 cents
now. In this scenario importers may also look to either cancel the contracts
or rework the deals. There is extreme panic in the market at present due to
uncertainty. We don’t know where the market trend will move,” said Atul
Ganatra, President, Cotton Association of India.
US cotton futures for July contracts were weak on Tuesday, trading at 65.70
cents per pound. A month ago, the prices quoted as much as 79 cents.
Importers worried
However, compared to international cotton prices, Indian cotton has
corrected by only about 5 per cent from ₹46,500 a candy (each of 356 kg) to
₹44,500 a candy.
Companies engaged in importing cotton expressed concerns on a possible
loss from the cancellation of the contracts. “Indian traders are afraid to
cancel the contracts because they don’t have that hedging mechanism (to
protect the price difference). Either they will have to go for arbitration or they
will have to pay the difference. Then there is no point in cancellation of
import contracts. Unless there is a hedging system to protect the losses, they
can’t afford to do it,” said a senior official from a company engaged in import
and export of cotton.
The current scenario, according to traders, is in complete contrast to the
sentiment following a lower crop outlook by the CAI. Earlier this month, CAI
had projected India’s cotton output for the year 2018-19 at 315 lakh bales,
about 6 lakh bales lower than its earlier estimate last month. Last year, the
total cotton crop stood at 365 lakh bales.
The United States Department of Agriculture (USDA), too, has reduced its
Indian cotton crop estimate for the crop year 2018-19 following a weak
monsoon last year and crop damage in key growing regions. From its earlier
crop estimate of about 345 lakh bales, the USDA has now projected India’s
cotton crop at 325 lakh bales.
“The USDA has made this reduction in their latest estimate, released on May
10, after extensive deliberations with the Cotton Association of India and also
after considering all aspects and the prevailing situation in India,” Ganatra
said.
Source: The Hindu Business Line, India Thursday, 16 May 2019