The rating agency estimates the domestic cotton output to increase by around 6 per cent to 36 million bales in 2018.
“A few initial weeks of the cotton sowing season have already witnessed increased acreage vis-a-vis last year and the trend is expected to sustain. This is likely to be complemented by the forecast for normal monsoons, with the possibility of El Nino formation gradually waning,” ICRA said.
India’s cotton-spinning industry has been facing twin challenges of subdued demand and high cotton fibre prices as a result of tight cotton availability since the July 2016. Amid a decline in exports to China and subdued domestic demand following the demonetisation drive, the growth in total spun yarn production declined to a five-year low in 2016-17.
“The expectations of higher output in the upcoming cotton season supported by increased sowing and a favourable monsoon forecast is likely to create a downward bias in cotton prices from Q2 FY2018 onwards, vis-a-vis the peak levels witnessed during the past one year. This augurs well for the domestic cotton spinning industry,” said Jayanta Roy, Senior Vice- President and Group Head, Corporate Sector Ratings, ICRA.
According to the rating agency, despite the weakness in production and sales volumes, domestic cotton yarn prices continue to be firm following the high cotton prices. However, the possibility of a further increase in cotton yarn prices is low due to weak export prospects.