The Hindu Business Line : Lower global cotton output may keep prices firm

In its outlook on raw cotton production for 2008-09 (August-July) season, the journal has pruned the production estimated by 1.39 million tonnes (mt) from last month’s estimated of 26.25 mt. The output for the coming season is seen at 24.78 mt against last year’s 25.81 mt.

Fears

The production estimate has been cut mainly on fears of fall in production in Australia, Turkey, the US and other growing nations. In Australia, the production is now expected to be 0.29 mt against earlier estimates of 0.34 mt. Last year, it produced only 0.13 mt.

According to the journal, reports are pointing to larger diversion of land for food and oilseeds crop, much against initial expectations.

One example is the US, where the production estimate has been cut by 94,000 tonnes from last month’s projection. And compared with last year, the production could be some 1.2 mt lower during the coming season.

Besides diversion of land to other crops, hot and dry weather in the key US growing regions and much of central Asia has been less than ideal for early development of plants. Again in China, excess rains in could spell trouble, though the journal has left last month’s production estimate of 7.65 mt unchanged. However, it is lower than last year’s 7.8 mt.

Between May and June, there has been a 0.44 mt drop in the production estimate of cotton.

On the other hand, offtake by major consuming nations is expected to increase to 26.18 mt against 26.05 mt. However, it is lower than last month’s estimated of 26.25 mt.

The Chinese consumption, one of the major importers of cotton from India, is expected to be around 11 mt against 10.8 mt last year. Indian offtake has been projected at 7.4 mt, up from last month’s estimate of 7.31 mt and 7.24 last year. Consumption is expected to decline in the US, Turkey, European Union and other nations. The net carryover stock is seen declining by 1.3 mt next season.

Higher Chinese consumption and lower production would mean demand for Indian cotton in the global market. This year, nearly 85 lakh tonnes have been exported. At least four lakh bales (of 170 kg) from the new crop have been contracted for exports from the new crop due in October.

Already, reeling under higher cotton prices, the textile industry is demanding a halt to exports, at least until December. The Tamil Nadu Chief Minister, Mr M. Karunanidhi, has also demanded curbs on exports to ensure supply to the textile mills.

Lower production and carryover stock besides higher consumption would mean prices will continue to rule firm in the coming months, in the domestic and global markets. Currently, the popular Shankar-6 variety is quoted at Rs 27,000 for a candy of 355.62 kg against Rs 26,000 last week.

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