The Hindu Business Line : Large stocks may rein in world cotton prices

WORLD cotton market's bullish expectations, following anticipated global production decline in 2005-06 and large imports by China have been contained to an extent by an overhang of stocks. Continued high level of inventory has pressured the market down by 10 per cent between April and August.

From 58 cents a pound in April this year, the Cotlook A-Index fell to 52 cents/lb last month (close to the average for 2004-05). For 2005-06, the A-Index is expected to average 62 cents/lb based on current market fundamentals.

Lower prices and less favourable weather are leading to a 7 per cent decline in world cotton output in 2005-06 to an estimated 24.4 million tonnes (mt) from the record 26.2 mt of last season, according to the Washington-based International Cotton Advisory Committee (ICAC).

Mill use is forecast up to a record 23.9 mt (23.4 mt).

However, in addition to anticipation of a rise in world cotton prices, high crude oil prices and slowing world economic growth could negatively impact consumption, it is feared.

"Although cotton is expected to remain price competitive with polyester, cotton's share of world fibre use is expected to decline to 38.1 per cent in 2005 from 40.4 per cent in 2001," ICAC said in its latest report.

China will be one factor that would support prices. China's import requirement is expected to double to 2.8 mt in 2005-06, taking world exports to a new high of 8.1 mt.

India's cotton crop prospects are satisfactory. There is little doubt about another large crop. However, within the industry and trade circles opinion about the size of the impending harvest is divided. Crop estimate varies from a low of 210 lakh bales to a high of 265 lakh bales. India will open the season with a large carry-in estimated in excess of 50 lakh bales.

Prices obviously are expected to remain pressured on the downside. Given the expectation of rising world cotton prices, export opportunities for Indian cotton look very real. Trade representatives see the possibility of exporting 15-20 lakh bales.

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