The Hindu Business Line : World cotton prices firming up

GLOBAL cotton prices are slowly but surely firming up. After averaging 56 cents a pound since August 2005, Cotlook A-Index rose to 58 cents in January.

Experts believe that there is more upside left in the international market in the coming months.

The Washington-based International Cotton Advisory Committee (ICAC) had projected Cotlook A-Index to average 65 cents a pound for 2005-06 based on supply-demand fundamentals.

In its latest report, ICAC said that following higher prices this season, world cotton planting could get a three per cent boost next year (2006-07) to 35.7 million hectares.

Assuming normal weather conditions, world cotton output could expand marginally to 25.4 million tonnes (25.2 ml.t.), the agency added.

Specifically, China, India, Turkey, and Brazil may have higher production, while the US output is forecast to fall next year.

Consumption, on the other hand, would continue to rise relentlessly, increasingly concentrated in Asia - China, India, Pakistan, and Bangladesh.

Interestingly, the four countries together account for 64 per cent of global mill use in the current year, which may go up to 65 per cent in 2006-07.

However, according to ICAC projection, world cotton prices may somewhat weaken next year because of projected lower import requirement of China and ending stocks rising to a record 11.3 ml.t.

India may buck global trend: While global prices are firm, the Indian market may present a contrasting picture. With total supplies for 2005-06 placed at about 315 lakh bales (of 170 kg) comprising opening stock of about 70 lakh bales, season's production of 240 lakh bales and imports of about five lakh bales, a huge inventory is likely to build soon as consumption requirement is considerably lower.

As of mid-January, domestic arrivals were an estimated 120 lakh bales, representing 50 per cent of the crop. Close to half the crop is yet to arrive. There is the expectation of a huge crop overhang building over the next 2-3 months.

Stocks can reach a staggering 100 lakh bales and more. Such a situation would lead to weakening of prices. It would of course be time for mills to make purchases and build stocks for the rest of the season.

Although exports for the season are projected at about 25 lakh bales, actual shipment may rise to 30 lakh bales because of firm price trend in export market.

The Indian domestic market bucking international price trend is a cause for concern. Growers here are unable to reap the benefit of higher global prices as the integration of the two markets is rather tenuous.

Rapid expansion in domestic output without creating adequate marketing outlet may prove counter-productive.