The Hindu Business Line : Tightening fundamentals to push global cotton prices higher

Mumbai, July 2 With global cotton production and stocks set to decline, an explosive cotton season in 2008-09 with prices of the commodity ruling high is expected.

Production is likely to trail consumption, possibly, by a million tonnes, while stocks are projected to drop by the same margin.

It would be the second year of tightening cotton market fundamentals and rising prices after a finely balanced season in 2006-07.

With planting going on in the country, yet another big season in terms of production and exports awaits India. Conditions for an expansion in output are propitious. Whether the output would equal or exceed the 31.5 million bales mark of 2007-08 remains to be seen.

According to the International Cotton Advisory Committee (ICAC), world cotton output in the ensuing season would be 25.5 million tonnes (mt) as against 26.2 mt in 2007-08).

Drop in US output

A major drop in production is forecast in the US and smaller declines are expected in China, Brazil, Egypt, Turkey and Central Asia.

On the other hand, production increases are projected for India, Australia, Pakistan and the African France zone. As for global consumption, the ICAC has projected a one per cent decline in 2008-09 to 26.6 mt due to projected slower global economic expansion and higher prices of cotton relative to polyester.

Global Imports

World cotton imports are likely to increase by about five per cent to 8.8 mt driven mainly by import demand from China.

World cotton stocks are forecast to decrease by more than a million tonne to11.0 mt in 2008-09, with the largest decline in stocks expected to occur in the US, where considerable supplies that accumulated during the previous two seasons will fuel exports.

But, again, every decline in cotton stocks with the US, the world’s most influential supplier, will send out a bullish signal to the world market because replacement is not going to be easy.

The ICAC secretariat has forecast an increase in the season-average Cotlook A-Index from 73 cents a pound in 2007-08 to 82 cents a pound in 2008-09.

The 95 per cent confidence interval is between 68 and 95 cents a pound. For India, the forecast price would be rather attractive.

The country can hope to continue to ship out 70-80 lakh bales of cotton and realise attractive prices.

Cotton growers are likely to be the main beneficiaries of the emerging scenario.

Main beneficiaries

The domestic cotton textiles industry has sought controls on cotton exports; but it would go against the interest of growers, especially at the time of heavy market arrivals towards the end of the calendar year.

India exported an estimate 80 lakh bales of cotton during 2007-08 season.

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