MUMBAI, Jan 1: Indian cotton prices are likely to fall further in January even though the government has stepped up buying at higher-than-market prices, traders said on Tuesday.

State-run Cotton Corporation of India (CCI) is now buying cotton in several states at a government set price, but this is unlikely to arrest price falls this month, they added.

Cotton prices are currently very low but there is still room for a five to 10 per cent drop, R.K. Baldua, vice president of Gujarat Ambuja Exports Ltd, a leading producer and exporter of cotton yarn, told Reuters.

Cotton prices in India have fallen by 20 to 30pc in the past four to five months on poor demand from mills and increased arrivals from fresh crops, traders said.

Under its support programme, the government fixes minimum prices for various commodities, including cotton, after considering factors like production costs and profits. It nominates some agencies to buy the commodities if market prices fall below this minimum level.

The CCI, the agency designated to procure cotton, has so far bought about 150,000 cotton bales (of 170 kg each) in the current crop year ending September under this support programme, which aims to stabilise prices and help farmers.

We are offering five to 10 percent more than the market prices as part of our market support operations, said Vishwa Nath, chairman of the CCI.

Cotton prices are currently touching rock bottom.

The current procurement drive is the largest since 1985/86 when the corporation had bought 500,000 bales of cotton.

Poor demand from mills and heavy arrivals are expected to bring down cotton prices further, traders said.

They said many millers had cut production by 10 to 15pc due to sluggish demand for yarn in domestic as well as export markets.

Cotton yarn inventories are pilling up at mills due to poor demand, said a cotton trader based in the western city of Ahmedabad, a major textile centre in the country.

Exports of cotton yarn fell to 387 million kg in January-October 2001 from 451 million in the same period in 2000.

Heavy cotton arrivals of about 100,000 bales per day were also putting pressure on local prices, traders said.

India’s cotton output in the current crop year is likely to rise to 15.6million bales from 14.0 million a year earlier, according to government estimates.—Reuters