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G. Chandrashekhar

Mumbai, Aug 3 A combination of falling global production (accentuated by lower output in the US), slowing world consumption growth, decline in stocks and increase in imports (driven mainly by China) is likely to be defining feature of the world cotton market in 2008-09.

Developments in India, the rising star in the global cotton firmament, will be closely watched by all stakeholders, for, the country has the potential to temper the emerging bull run in the market; but the risk of policy changes cannot be wished away.

World cotton production is expected to decrease by five per cent to 24.9 million tonnes (mt) in 2008-09 due to declines in both area and yield, with the US output projected to fall by more than one mt to 3.1 mt, according to Washington-based International Cotton Advisory Committee (ICAC).

World mill use, which was flat in the previous two years, is projected to decline by one per cent to 26.4 mt due to slower global economic growth and higher prices of cotton relative to polyester, the agency added.

As for trade, world imports may rise by six per cent to 8.8 mt, driven largely by China’s growing import needs. ICAC said exports from the US, India and Brazil are expected to increase. With output trailing consumption, stock drawdown is seen inevitable. A 12 per cent decline in world stocks is seen that will leave 10.7 mt of cotton at the end of the season.

Given these fundamentals, the ICAC secretariat has forecast an increase in season-average Cotlook A-Index from 73 cents a pound in 2007-08 to 83 cents a pound in 2008-09. Prices can move in wide range of between 69 cents and 97 cents a pound.

The price signals are clear. World cotton market will continue to witness a bull run with greater ferocity in the ensuing season. Indian market will not remain insulated from overseas influences. In 2007-08, domestic prices escalated by 30-35 per cent. Forward prices for Indian varieties such as Shankar-6 are already at a high premium.

There are uncertainties, though. With a shadow cast on the production prospect in India (planted acreage is lower) and possibility of restrictions on cotton exports, the world may be starved of much-needed cotton that India has been supplying in recent years.

Cotton export has the potential to turn into a contentious issue between various ministries of the Government as also between industry bodies and exporters. The next 2-3 months are sure to witness hectic lobbying in New Delhi by interest groups.

More Stories on : Cotton | Outlook

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