Rising Cotton Prices and Supply Shortages Propel Demand for Man-Made Fibres, According to Nuvama.
India’s cotton surplus is witnessing a significant contraction, with recent data from Nuvama Institutional Equities indicating a shift in the cotton balance sheet from surplus to equilibrium. Cotton production has declined from a peak of 6.31 billion kg in crop season (CS) 2021 to an estimated 4.95 billion kg in CS 2026. Concurrently, imports have surged from 0.26 billion kg to 0.80 billion kg, while exports have sharply decreased from 1.28 billion kg to just 0.20 billion kg. This scenario is further reflected in the volatility of Shankar-6 cotton prices, which saw an increase from ₹110/kg in CS21 to ₹221/kg in CS23 before settling around ₹155/kg recently. The shifts in country-wise trade flows, notably with Bangladesh emerging as a major buyer, underscore these dynamics.
The implications of this narrowing surplus for common citizens and market stakeholders are profound. Elevated cotton prices are increasing raw material costs for textile producers, which may lead to higher retail prices for clothing and textiles. Consequently, consumers might face inflated prices, impacting disposable income and purchasing power. Additionally, spinners are operating in a tighter margin environment, indicating potential job risks and industry instability if prices remain volatile. The pressing need for diversification into man-made fibers (MMF) is becoming increasingly evident, as the industry looks to hedge against cotton price fluctuations and supply limitations.
Looking ahead, the long-term outlook necessitates adaptive strategies from both the government and the Reserve Bank of India (RBI). The focus will likely be on enhancing MMF capacity to counterbalance the declining cotton surplus, thereby ensuring a more resilient textile value chain. Additionally, while temporary duty waivers have been reinstated to support farm incomes, policymakers must explore sustainable measures to improve the competitiveness of mills without compromising farmers’ earnings. Monitoring the convergence of domestic prices to global benchmarks will be critical, as the industry grapples with these shifts and the interplay between policy interventions and market fundamentals.
Source: The Hindu
(Expert Note: This report was independently prepared by the Wealthova Economy team.)