The Hindu Business Line : Cotton market edgy over Chinese factor

World cotton market fundamentals have not witnessed any marked change in the last four weeks, yet the market lacks direction because of the China factor. Uncertainty reigns over the volume of Chinese imports during 2006-07. This factor, weighing on the market for some time now, refuses to fade.

For China — the world's largest producer, consumer and importer — initial projections for the new crop year pointed to 3.7 million tonnes (mt) imports (40 per cent of global imports), with the possibility of the volume expanding.

It may be worth mentioning that in 2005-06, as compared with the initial projection of 3.7 mt, China ended up importing about 4.2 mt. To what extent actual business during the current year will vary from the current projection remains to be seen. Many believe imports may be lower.

Currently, there is significant uncertainty regarding projected 2006-07 Chinese imports due to lack of information on Chinese consumption and the intention (buying or selling cotton) of the China National Cotton Reserves Corporation, according to Washington-based International Cotton Advisory Committee (ICAC).

At 25 mt, world cotton output this year will trail consumption estimated at 25.6 mt. China alone will consume a forecast volume of 10.2 mt this season, accounting for 40 per cent of global cotton use.

World cotton trade volumes and ending stocks are projected to be lower than in the previous year.

Brisk arrivals in India

In the Indian market, cotton arrivals are gathering momentum by the day. New crop arrivals so far are estimated at a little over 20 lakh bales. According to Mr Shirish Shah of Bhaidas Cursondas & Co, a cotton trading house, November would see arrivals of about 40 lakh bales, while in December and January they would increase to 50-55 lakh bales each month.

On current reckoning, traders estimate the season's output in excess of 280 lakh bales, with Gujarat alone accounting for no less than 100 lakh bales.

Exports are on currently, with most shipments headed for China.

With uncertainty over China's eventual total purchase volume, the market faces a certain downside risk. If a significant slowdown in Chinese purchases occurs in the coming months, it can lead to a glut situation here and consequent price collapse.

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