The Hindu Business Line : World cotton prices may firm up on lower output

, GLOBAL cotton production and consumption are likely to remain in a state of tight balance in 2005-06 following an anticipated decline of over 10 per cent from the record output in the previous year, while consumption will continue to be driven by economic growth and rising Asian demand, especially from China.

By its very nature, a fragile balance between production and consumption is susceptible to disturbance if supply uncertainties emerge, which in turn will impact prices. However, the near-record opening stock for the new season is expected to rein in any possible runaway price rise in the event of any supply disruption.

In its latest report, the Washington-based International Cotton Advisory Committee (ICAC) has stated that the current market fundamentals suggest the season-average Cotlook A-Index will be 65 cents per pound in 2005-06, 13 cents more than the average expected for 2004-05.

However, not many in the marketplace share that kind of robust optimism on the price front, although China's very large import requirement is sure to keep the market undertone firm.

World cotton output is forecast to decline to below 24 million tonnes in 2005-06, down 2.4 mt, but still the second largest crop ever. Consumption is expected to rise to a new high of 23.8 mt (23.3 mt in 2004-05), with use in Asia likely to witness a big expansion.

World trade in cotton during 2005-06 is poised to reach a new high of 8.1 mt (7.3 mt). China will be the main driver of world trade growth. Import requirement of the country is projected by ICAC at an unprecedented 2.8 mt. However, some knowledgeable players in the market believe China's import forecast is somewhat overstated. China's imports may end up at 2.5 mt, a record nonetheless.

With the southwest monsoon active across the country, cotton production in India is poised to register a healthy volume. While it is premature to estimate the crop size, indications are that it would turn out to be a large one.

Depending on levels of precipitation, it may be safe to expect a crop size of anything from 220 lakh bales to 250 lakh bales, as compared with 240 lakh bales produced in 2004-05.

Steady domestic prices in the wake of large production for the second season in a row coupled with firm global prices would open a window of opportunity for exporting Indian cotton next season.

According to ICAC, initial projections for 2006-07 indicate that production will rise to 24.7 mt, slightly above consumption and that the season-average Cotlook A-Index is expected to remain between 60 and 70 cents per pound for a second season.

Given record opening stocks next year and forecast tight balance between production and consumption, to what extent the producer-friendly price outlook can come true is a matter of debate.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
AP mulls directorate for cloud seeding

AP plan to expedite 8 irrigation projects

Bio-fertiliser policy soon

Kamal Nath wants air cargo rate cut to boost floriculture exports

Karnataka Horticulture Department plans to distribute 40 lakh free saplings

Tea prices hit new low at Coonoor sale

Cotton to test support level

World cotton prices may firm up on lower output