Due to a decline in domestic yarn production, India Ratings & Research (Ind-Ra) has revised cotton outlook to negative for 2015-16. It is unlikely recover in cotton exports and a fall in domestic cotton prices below minimum support prices (MSP), the rating agency said in a report here.

Factors such as contraction in domestic yarn production for exports, unlikely recovery in cotton exports, and a fall in domestic cotton prices below MSP are likely to keep domestic cotton prices under pressure in 2015-16. The conversion of China’s cotton reserve policy into a direct subsidy policy in April 2014, will increase reserve cotton sales and reduce its cotton imports to half in 2015-16. Cotton exports from India to China had fallen 26.4 per cent annually over April-October 2014, compared to a 4.3 per cent dip in the previous year, says the report.

Lower global cotton prices and the relatively stable rupee will keep the attractiveness of Indian cotton under pressure in the export market for the year 2015-16. India’s cotton exports to other destinations are unlikely to replace the quantum of lower trade with China.

Due to a drastic reduction in off-take from China, domestic cotton consumption and cotton yarn production have shown tepid growth at 3.6 per cent and 2.3 per cent, respectively, over October-November MY14-15. The agency expects cotton prices to trade lower year-on-year unless the demand of cotton yarn recovers in 2015-16.

Cotton prices (represented by Shanker-6) are likely to trade between Rs 40 per kg and Rs 45 per kg while lint prices will trade in the range of Rs 85-100 per kg for MY15-16, says the report.