Prices of cotton have already gone up by 10-20 per cent per candy (356 kg) this year to Rs 16,000-Rs 23,000 depending on the variety. There has been a softening in the past few weeks but the prices are expected to firm up again as demand grows.
Cotton Corporation of India (CCI) executives said cotton imports by countries like China, Pakistan and Bangladesh had increased by 20-25 per cent in the first two months (November-December) of the season. This is expected to rise by 30-40 per cent this year due to a decline in production in these countries.
"This will lead to a demand-supply gap in the Indian market, leading to higher prices. Rising demand in China will also fuel a significant increase in prices next year and put additional pressure on the Indian industry, which is badly hit by the appreciation of the rupee against the US dollar," said a source.
"This year, Indian textile companies will not be able to build an inventory for three to six months, which they were able to do in 2006-07. Accordingly, procurement would be lower," the source added.
CCI estimates suggest that production of cotton in India will be around 30 million bales this season, compared with 28 million bales in 2005-06. Of this, around 6.5 million bales are expected to be exported to China, Bangladesh, Pakistan, Indonesia and other countries.
"Traders are exporting best cotton to earn a better margin. As a result, there is a scarcity of quality cotton domestically, which has resulted in higher prices," said DK Nair, secretary general, Confederation of Indian Textile Industry.
Industry experts feel that unless yarn prices go up, the spinning mills will not be able to cushion the impact. "The prices of yarn have declined by around 12 per cent to Rs 97 per kilo (30s combed) due to piling of yarn stocks with the mills," said Sunil Jain, president, Northern India Textile Mills Association.
Another concern is that a Chinese company pays only $150-175 (Rs 6,000-7,000) as transportation cost per container (25 tonnes) of cotton from India, whereas if a mill in India wants to transport a truckload (nine tonnes) of cotton, it has to pay Rs 8,000-9,000 and even Rs 15,000 in some cases as freight.
"India should not encourage export of the white gold (cotton) to China as it converts our raw material into fabric and exports it back to India at a higher price," Jain said.
According to the United States Department of Agriculture data, China's cotton production has remained steady at 35.5 million bales for the last two years, whereas its consumption has gone up from 50 million bales in 2006-07 to 55 million bales till November this year.