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Textile exporters to be more competitive globally as domestic cotton prices fall to 11-month low

ICICIdirect Research 20 Sep 2022 DISCLAIMER

What's Buzzing 

Cotton prices in India have declined ~15% since last week to Rs 190/kg on the back of anticipation of a better crop in cotton season (CS) 2022-23. The prices are now down more than 34% from their peak of Rs 290/kg (May 2022). International cotton prices have also softened but at a relatively slower pace (~7%) to US$1 per pound last week. 


Supply side concerns are keeping global cotton prices elevated. Owing to drought like conditions in the US (third largest cotton producer and largest cotton exporter), production is estimated to decline 21% for the upcoming cotton season (CS). Furthermore, cotton crop damage in Pakistan (due to intense flooding) is expected to result in 9% contraction in production for CS 2022-23. On the other hand, India’s cotton prices have been on a declining trend in anticipation of a better crop in CS 2022-23. If crop conditions across cotton-growing states remain normal without any impact from heavy rains in October or further pest attacks, the industry is expecting more than 35 million bales (170 kg/bale) production in the upcoming 2022-23 season against 31.5 million bales in the current season. Cotton harvesting acreage is also expected to improve to 13 million hectares (previous year: 12 million hectares) with enhanced yield at 461 kg/hectare (previous year: 439 kg/hectare). 

Our Perspective 

The disparity between international and domestic cotton prices has narrowed down materially with Indian cotton price premium to global cotton price declining from ~ 40% in June 2022 to ~7% in September 2022. The likelihood of a 11% increase in production in CS 2022-23 could lead to further softness in cotton prices with arrival of new season cotton. If such a scenario prevails for a longer duration with elevated global cotton prices, the tide for Indian cotton textile value chain can turn favourable. The expected decline in cotton prices is likely to improve India’s global competitiveness in the international cotton textile trade. Near term challenges (slowdown in key export markets) may persist but we believe there is enough headroom for sustainable long term growth (expected free trade agreements with Europe/UK, PLI scheme, China+1). Preferred stocks: KPR Mill and Gokaldas Exports.

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