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G. Chandrashekhar

Mumbai , May 3

EXPECTATION of changes in global demand-supply fundamentals and trade flows next season, beginning August 2005, is likely to drive cotton prices higher, providing a shot in the arm for major producer-exporters while hurting consumers.

It is possible that a major export opportunity is about to come India's way; but the outcome would depend on the country's preparedness to produce large volumes of quality cotton.

From the record level of the current year (25.96 million tonnes) world cotton output is expected to decline by 10 per cent in 2005-06 to 23.53 million tonnes (mt) and trail, albeit marginally, world consumption currently projected at 23.65 mt.

World cotton exports are set for a big boost even as China's import requirement is projected to skyrocket from an estimated 1.45 mt this season to 2.8 mt next year. With such massive import power, China's purchase pattern is bound to determine the extent of price volatility.

In view of these anticipated changes, Cotlook A-Index is expected to average 66 cents a pound in 2005-06, 13 cents above the expected current season average of 53 cents/lb, according to the Washington-based International Cotton Advisory Committee (ICAC).

As the world's third largest cotton producer, whether India will be able to benefit from the expected rise in world cotton market next season will depend on the level of output that may be achieved in the ensuing kharif season.

Last two years, India's cotton production has risen by leaps and bounds. It remains to be seen if the momentum will be maintained. Output of anything above 200 lakh bales should open up large export opportunities for Indian cotton.

Forecast of a `normal' southwest monsoon is a favourable sign. Despite WTO ruling against cotton subsidies being given by the US, no changes in the cotton policies providing direct support in the developed countries are expected next season, ICAC said adding that the US has pledged to abide by the requirements of WTO ruling on export subsidies by July 1,2005.

Direct government support to the cotton industry increased from $3.4 billion in 2003-04 to an estimated $4.7 billion in 2004-05.

World cotton consumption is impacted by economic growth, fibre prices, trade rules and consumer preferences. The textile industry will be positively affected by the elimination of quotas on textiles and apparel trade among WTO members since January 1, 2005.

International polyester prices are currently about 20 per cent above cotton prices. Nevertheless, rising cotton prices in 2005 are likely to slow the rate of growth of cotton mill use from an 18-year high of 8 per cent this season to 2.5 per cent in 2005-06, ICAC observed and forecast that world mill use may reach 23.7 mt.

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