When the 2020/21 year has just begun, the market is very concerned about how India’s CCI will simultaneously handle the large inventory of the previous year and conduct large-scale acquisitions in the new year at higher MSP prices. However, time has proven that the market’s worries were unnecessary.
In September 2020, the ex-warehouse price of Indian S-6 1-1/8 grade cotton was close to 61 cents/pound, while the ICE futures December contract was at 64 cents/pound at that time. Afterwards, domestic cotton prices in India began to gradually rise following ICE futures. By early January, the domestic spot price of India’s S-6 1-1/8 grade cotton had exceeded 75 cents/pound, the highest level this year, while the ICE futures March contract had exceeded 80 cents/pound.
Compared with a few months ago, the basis difference of Indian cotton has slightly expanded, but CCI has sold more than 9 million bales of old cotton stocks in the process of steady price increase, of which in January 2021 Nearly a million packs were sold in the first week. At the same time, CCI’s MSP acquisition volume as of mid-January also exceeded 8 million packages. It has to be said that India’s CCI inventory cotton sales and new cotton rotation are carried out very efficiently.
However, with the large sales of CCI old cotton, the inventory in the hands of cotton merchants has also increased rapidly, which has put pressure on the basis of Indian cotton and weakened. Last September, Indian cotton was the cheapest cotton in the world, and it is now.
The rise in ICE futures and Indian cotton exceeding 75 cents also changed the cotton trade to some extent. In the first week of January, the daily volume of new Indian cotton on the market reached 1.25 million bales, while CCI purchased only 150,000 bales during the same period, and the rest went into the hands of private cotton traders, which means that the spot price of Indian cotton began to approach the MSP. Unless spot prices fall, cotton will go into the hands of traders.
The low prices in India bring very obvious advantages to Indian cotton exports, Indian yarn mills and cotton yarn exporters. In October 2020, India exported 90,000 tons of cotton, compared with less than 20,000 tons a year ago. From August to October 2020, India exported 224,000 tons of cotton, with the main buyers being Bangladesh, China, Vietnam and Indonesia. In October, India exported 85,400 tons of cotton yarn, a year-on-year increase of 9.7%, and its exports to China continued to maintain its advantage.
At present, India’s domestic cotton consumption has basically returned to the level before the epidemic, and orders from textile mills continue to increase. Since August last year, orders from Indian textile mills have increased significantly, cotton yarn inventories have been consumed massively, and supply chain channel inventories have been empty. Recently, the number of orders for cotton textiles and clothing from Europe, the United States and Australia has increased significantly, and India’s domestic cotton consumption is expected to reach a record high this year.
The latest forecast from the Indian Cotton Association shows that the opening inventory of Indian cotton in 2020/21 will be increased by 1.75 million bales, the output will be increased by 250,000 bales, to 35.85 million bales, the consumption will be 33 million bales, and the export volume will be 33 million bales. 5.4 million bales, ending inventory 11.35 million bales.
At present, it is not clear how much inventory Indian traders have, but international cotton merchants generally have a large amount of Indian cotton in stock for sale. Some of the basis differences of CCI inventory M 1-5/32 grade cotton in 2019/20 are only 50-100 points, while the basis difference of Brazilian cotton of the same grade is around 900 points. Such a huge price difference has also prompted Chinese textile mills to purchase Indian cotton in large quantities.
Compared with American M 1-5/32 grade cotton, the price of Indian cotton of the same grade is more than 11 cents cheaper. Such a large price difference can easily attract strong attention from many Asian countries, including China, Vietnam, Textile mills in Bangladesh and Indonesia may both reduce their purchases of U.S. cotton and purchase more Indian cotton. The low price of Indian CCI cotton stocks and the large amount of cotton entering the spot channel and exported to the international market will put pressure on short-term international cotton prices and the basis difference of Indian cotton.
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