The Hindu Business Line : China continues to drive global cotton market

As the world's largest producer, importer and consumer of cotton, China continues to be an important driver of the global cotton market and developments in that country are closely watched for their price implication.

The latest from China is that its cotton imports during 2006-07 could decline by as much as 15 per cent to 3.6 million tonnes, according to Washington-based International Cotton Advisory Committee (ICAC). Imports into other countries are expected to remain stable.

As a result, world cotton export during the year is forecast to be down 7 per cent to 9.0 mt (9.8 mt); but it would still be the second highest ever. The rate of increase in global cotton consumption is also seen slowing down. Total use is projected to rise by only 4 per cent in 2006-07 versus 6 per cent in the previous year and 8 per cent a year earlier.

Cotlook A-Index, an acknowledged indicator of prices, is forecast to average 57 cents a pound in 2006-07, marginally higher than 56 cents in the previous year.

In 2007-08, cotton production is likely to remain unchanged at 25.1 mt.

Output will trail consumption projected at 26.4 mt. Stocks could be drawn down. As a result, average prices are likely to rise, the agency said.

Indian situation

Meanwhile, India's cotton arrivals are gathering momentum. October-December arrivals are estimated to total 100-110 lakh bales; and trade expects a similar quantity to come into the market during January-February.

There would be arrival pressure over the next eight weeks and prices may soften.

Market arrivals will of course slowdown from March onwards.

Export shipments so far are estimated at about 18-20 lakh bales; with further commitments placed at 7-8 lakh bales.

For the market, it would be interesting to watch developments in the US from April onwards.

There is expectation US cotton acreage may shrink because of higher allocation for corn (maize) due to bioethanol demand. Lower acreage may also mean lower crop size and export surplus.

This can potentially result in world prices gaining some strength from April onwards. China's purchases will also have an impact on prices.