The Hindu Business Line : World cotton prices may rule firm

A 7.5 per cent decline in global cotton production combined with a 3.8-per cent increase in consumption leading to a world use of a record 24.6 million tonnes (mt) in 2005-06 is expected to keep cotton prices firm.

With overseas prices improving, export opportunities for Indian cotton are opening up. For 2005-06, cotton production in the country has set a new record of 255 lakh bales, as estimated by the Cotton Advisory Committee.

The upside thrust to prices is already evident with rates rising to a recent high of 54 cents a pound in the New York market this week.

On current reckoning, the market is likely to cross the psychological barrier of 60 cents a pound in the near future, as worldwide import demand is projected to grow by a hefty 23-25 per cent.

Confirming the general expectation of the global cotton market of an upswing in sentiment, the US Department of Agriculture (USDA) in its latest report has forecast 2005-06 world cotton output lower at 24.3 mt (26.2 mt) resulting from a sharp 15.5 per cent decline to 5.3 mt in China, and a decline of 16 per cent to 2.1 mt in Pakistan.

At 4.9 mt, the US, too, is projected to harvest 2.3 per cent less than the previous year.

World cotton consumption, on the other hand, is going to be driven principally by Asia represented by the world's two most populous countries China and India, as also Pakistan.

A 10-per cent increase for India to 3.6 mt; 7.8 per cent rise to 9.0 mt for China; and 4.7 per cent to 2.4 mt for Pakistan has been projected by the USDA.

With lower crop and rising consumption demand, China's import requirement for 2005-06 is expected to expand by over 140 per cent to an unprecedented 3.4 mt (1.4 mt), while Pakistan's imports could go up by about 14 per cent.

In such a world scenario, one factor that could rein-in prices is the large opening stock for the season.

At record 11.1 mt, the global inventory level is comfortable; and together with the season's production, although lower than previous year, there is little possibility of supply tightness developing.

The USDA has projected cotton exports out of India to rise by 125 per cent in 2005-06 to 392,000 tonnes.

Leading players in the cotton trade who are hopeful of 20-25 lakh bales export broadly corroborate this.

India would also end up with an unprecedented closing stock of over 2.0 mt.

Domestic cotton is expected to be exported to China in sizeable quantities. Pakistan is also a market.

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