Cotton futures in India, the world's second-largest producer, are likely to gain this week on good domestic demand from yarn manufacturers to meet overseas shipments amid steady supplies of the new crop.

Firm cues from the international market are also seen supporting the upside in prices.

Demand from spinners and exporters has been good and is likely to stay firm in the coming weeks as Indian prices are competitive in the global market, spot traders said. Daily cotton supplies have been steady in the range of 180,000-190,000 bales of 170 kg each across India, they said.

"Cotton yarn is most competitive in the world and hence there is very good demand for Indian yarn. On the other hand, importers' inquiry from countries other than China was also reportedly good during the week," Kotak Commodities said in a research note.

China, the world's top buyer of cotton, will replace its controversial cotton and soy stockpiling programs with crop subsidies, according to a report from the official Xinhua news agency that did not include a timeline for the overhaul. (ID:nL3N0K61D4)

The January cotton contract rose 1.38 percent to close at 19,880 rupees per bale on the Multi Commodity Exchange.

The January contract may rise to 20,200 rupees in the short-term, said Chowda Reddy, a senior analyst with Inditrade Derivatives and Commodities.

However, a rise in local supplies and estimates of higher output could limit the upside. The most-active March cotton contract on ICE Futures U.S. was up 0.29 percent at 84.36 cents per pound at 1201 GMT.