A well-known Indian cotton yarn exporter recently analyzed that in the fourth quarter of 2016, India’s cotton yarn exports stopped declining after several months of downturn, and market demand returned to normal levels. Driven by the reduction in production of domestic factories and the increase in exports, Indian cotton yarn prices remained firm at the end of October. If monetary policy had not disrupted the market order, Indian cotton yarn prices would certainly have continued to strengthen.
At present, India’s domestic retail sales have returned to 80% of the level before the monetary policy, and will recover slowly in the next month. It is understood that some informal garment enterprises are still adapting to the new policy. Financial constraints have led to slow production progress and very light yarn procurement. In recent days, garment companies have begun to increase production to meet market demand after the New Year, and cotton yarn prices have begun to strengthen. Despite this, cotton yarn price increases are not expected to be only 2-3%, because export demand will decrease once this level is exceeded.
Regarding the market trend in the next stage, the following points deserve the market’s attention:
1. Affected by monetary policy, India’s clothing consumption dropped by 50%, but it has now returned to 80% of the previous level and will become normal in the next month.
2. Although India’s domestic cotton yarn demand has dropped by 50% in the past two months, cotton yarn prices have not fallen.
3. The cotton planting area in India decreased by 12% in 2016/17. If the yield per unit area increases, the output is expected to be the same as the previous year, still at a historical low. Due to low stocks at the beginning of this year, cotton prices in India are expected to rise by about 20% year-on-year.
4. Cotton yarn inventory in circulation channels is at a historically low level, which is usually the biggest factor in price increases.
5. Currently, all Indian cotton yarn buyers require immediate shipment because they have no inventory.
6. Due to operating losses, the operating rates of factories in India and Pakistan are very low, and market supply is also decreasing.
7. The huge losses of the factory indicate that there are very good reasons for raising prices or reducing production, and there will be no reduction in sales at all.
It is expected that from January 2017, domestic manufacturers in India will start normal procurement, the supply of cotton yarn will become tight, and the price of cotton yarn will rise. Indian cotton yarn prices are bullish at the beginning of the new year
