The Hindu Business Line : World cotton prices may fall

CHINA will continue to be the mover and shaker of the world cotton market in 2004-05 too like it was in the previous year. But the role of the world's largest producer and consumer this year will make a big difference to world cotton prices. The effect has already been felt.

World cotton market is expected to be consumer-friendly over the next several months with prices sharply down already from the highs seen since October 2003. This is expected to encourage higher consumption, much of which will happen in China.

In 2003-04, an estimated two-million-tonne shortfall between production and consumption requirement in China pushed world cotton prices to new highs not seen in recent years which helped the world cotton economy out of depressing market conditions.

However, higher prices are seen boosting acreage and production to record levels this year. The Washington-based International Cotton Advisory Committee (ICAC) has forecast world cotton production in 2004-05 at 23.1 million tonnes, up 13 per cent or a record 2.6 mt from the previous year's 20.5 mt.

At 21.6 mt, world cotton consumption will trail production this year.

China's demand-supply shortfall in 2004-05 which is expected to shrink by one million tonnes from the previous year's 2.2 mt would mean lower imports - 1.5 mt versus the record 1.9 mt in 2003-04.

Expectations of rising stocks and lower imports by China have already caused Cotlook A-Index to decline from 75 cents per pound in January to 52 c/lb in August 2004. For cotton consumers and importing countries this is indeed a welcome development. World ending stocks are projected to rise to 9.2 mt, up from 7.8 mt in 2003-04.

Market fundamentals suggest that the season average Cotlook A-Index will decline to 52 c/lb in 2004-05, 16 cents or 24 per cent below the average of 2003-04, ICAC said.

Indian cotton crop conditions are said to have improved with welcome rains in August. There is a wide variation in the crop numbers being discussed by processors and trade intermediaries. The estimates range between 155-160 lakh bales on lower side and 175-180 lakh bales on the upper side.

The domestic market is expected to reflect soft prices in the world market.

Despite satisfactory production prospects at home, cotton imports will continue because of price attractiveness.