The Hindu Business Line : Global cotton offtake may decline 11% this year

“Responses from the major producing countries are almost uniformly pessimistic regarding business prospects and frequent mention is made of spinners idling capacity.”

M.R. Subramani

Chennai, Jan. 9 With the climate in the yarn market deteriorating further, global cotton consumption is likely to decline by 11 per cent during the current cotton season ending July. This is termed as “unprecedented” by the industry.

According to Cotton Outlook, the business confidence is at the “rock bottom in global spinning sector” and offtake of raw cotton would drop to 23.02 million tonnes (mt) against 25.65 mt last season.

The journal at the start of the season did see the consumption dropping by around 0.1 mt in September but since then, it has been pruning the offtake estimates further.

“The impression gleaned from our latest business confidence survey is that the yarn market climate deteriorated still further during the fourth quarter of last year. Responses from the major producing countries are almost uniformly pessimistic regarding business prospects and frequent mention is made of spinners idling capacity, in the face of weak demand, rising stocks and unremunerative prices,” it said in a release.

Cotton Outlook’s projections show a sharper fall in consumption from the picture painted by the International Cotton Advisory Council. ICAC, in its forecast this month, saw the offtake dropping seven per cent to 24.5 mt.

Going by its projection, cotton production is likely to be around 24 mt, somewhat unchanged from last season. Initially, the projection was raised but going by the trend being experienced in Asian countries such as India and Pakistan, output could witness a fall.

The journal had initially estimated the output at 24.51 mt in September before scaling it further to 24.54 mt.

FALL IN AREA

Dwelling on the gloomy picture, it said that in July 2007 survey replies referred to heavy investment in China, most of Indian sub-continent and parts of South-East Asia but the number of spinners scaling up their operations has declined steadily in each subsequent survey.

ICAC has also projected a fall in the area under cotton this season to 31.15 million hectares from 33.35 million hectares, while production is estimated to drop six per cent to 24.14 mt. Also average yield is likely to drop to 775 kg a hectare from 78 last year.

Cotton plantings next season are seen further down and in the case of the US, it is seen as the lowest in the last 10-12 decades. A survey has put the plantings at 148-year low. Initial planting projections have been put at 7.907 million acres against 9.414 million acres this year.

PRICES UP

Cotton prices, however, have surged in the last few weeks to 50.45 cents a pound on ICE futures in early trade on Friday. The trend is in view of reports of higher export sales by the US. During the second half of last year, the prices had slid to a six-year low of 39.23 cents a pound.

Despite the low global prices, Indian spinning mills are paying a higher price for the cotton as the Centre raised the minimum support price for cotton by 40 per cent this year. Currently, prices in the domestic market are about 10 per cent higher than the same period a year ago. Shankar-6 variety on Friday was quoted at Rs 21,500 a candy of 356 kg against Rs 19,800 during the year-ago period. In contrast, landed price for similar variety cotton is Rs 20,000.

Domestic production is estimated to be lower at 280-290 lakh bales of 170 kg against initial estimates of 322 lakh bales and 315 lakh bales last year.

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