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India Ratings Assigns Stable Outlook To Cotton Sector For 2014-15

India Ratings Assigns Stable Outlook To Cotton Sector For 2014-15

29 April 2014

INDIA - Mumbai based credit rating agency, India Ratings has assigned stable outlook to cotton sector for 2014-15 fiscal year (April 2014-March 2015) from negative, writes Jagdish Kumar.

The agency has also revised the rating outlook on cotton companies to stable for FY15 from negative.

The agency attributed the revision to the revival in domestic yarn production for exports and favourable government policies that have helped stabilise cotton prices at a higher level, which will stabilise the credit profile of cotton companies.

Due to favourable monsoons and higher acreage of high-yielding Bt (Bacillus Thuringiensis) cotton, Cotton Corporation of India (CCI) expects domestic cotton production to be at a decade high at 37.5 million bales during the fiscal with yields at a six-year high, the rating agency said in a statement.

However, the agency believes that the adverse weather developments in January 2014 will lead to lower-than-expected actual production for the marketing year (October-September) 2013-2014.

On pricing, India Ratings said that cotton prices are likely to remain at current levels with no more than a 10 per cent change both ways. The attractiveness of Indian raw cotton prices (ginned) may continue during 2014-15 fiscal year on account of an 8 per cent-10 per cent discount from global prices measured by Cotlook A index.

Favourable government actions such as raising minimum support prices (MSP) by 32 per cent and 21 per cent for medium and long staple length cotton, respectively, since manufacturing year 11-12 have supported cotton prices, the agency stressed.

The agency believed that the spurt in demand from garment manufacturing nations namely Pakistan, Bangladesh, Turkey and Vietnam is due to lower cotton demand from China in manufacturing year 2013-14.

The revival observed in domestic cotton yarn production in April-November 2013 to continue in current fiscal year, but emphasized that Indian cotton and yarn traders must maintain just-in-time inventory, given the uncertainty over the release of the Chinese reserve cotton and the possible pressure on cotton prices FY15 onwards, India Ratings adds.

The agency expects 2013-14 to be another year of cotton surplus with global stock to use ratio remaining at a multi-decade high of 89.3 per cent. China has nearly 59.7 per cent of the global ending stocks.

TheCropSite News Desk

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