The Hindu Business Line : Global cotton prices seen firm despite slow offtake growth

A slowdown in global economic growth, rising world market prices and loss of competitiveness vis-À-vis polyester in major markets since August 2007 may all combine to result in a worldwide cotton mill use increasingly more slowly this year.

Despite a slowdown in consumption growth, world cotton prices are expected to stay firm, buoyed by decline in stock-to-mill use ratio in the world (less China, the largest producer, importer and consumer of cotton).

Mill consumption

Global cotton mill consumption is expected to increase by three per cent in 2007-08 to 27.4 million tonnes, reflecting a smaller rate of growth as compared with previous three seasons; but would remain higher than the long-term average of two per cent, the International Cotton Advisory Committee (ICAC) said in its latest report.

The ICAC has forecast season-average Cotlook A-Index of 67 cents a pound in 2007-08, eight cents higher than in the previous year. It, therefore, stands to reason to expect the peak rate during the season to breach 70 cents a pound and rise to as high as 75 cents, albeit for a brief while, according to analysts.

Output

World cotton output is down three per cent to 26 million tonnes this year due to decline in area. Production is forecast down in major origins such as China, the US, Pakistan and Turkey. India is the only major origin with a substantially higher production of 5.3 million tonnes, which makes the country the worlds second largest producer, relegating the US to the third position.

India: Cotton arrivals in the country are going on apace. This week saw record daily arrival of over one lakh bales in Gujarat alone and on all-India basis around 2.3 lakh bales. October and November arrivals were an estimated 77 lakh bales, while December and January will witness heavy arrivals of 60-65 lakh bales each month, Mr Shirish Shah of Bhaidas Cursondas & Co, told Business Line.

Cotton prices have stayed relatively firm despite rising arrivals primarily because of large export interest. Many trading houses believe, India may well export 70 lakh bales this season. Close to 50 lakh bales have already been contracted, while 10-12 lakh bales have been shipped out already, it is estimated. Majority of shipments will take place over the next two months. Major destinations are China, Pakistan, Bangladesh, Thailand and Indonesia. Export prices have so far been in the range of 64-69 cents a pound.

Prices firm

Notwithstanding a bumper crop of over 300 lakh bales, cotton prices have been ruling firm. Export demand has continued to support producers.

Indian cotton growers have never had it so good in recent years. However, the market may face a slight downside risk in prices as a result of pressure from heavy market arrivals anticipated over the next few weeks. The benchmark Shankar-6 is currently offered at Rs 19,400 a candy (355.62 kg), and some easing in market prices is widely expected.