Date:04/08/2005 URL: http://www.thehindubusinessline.com/2005/08/04/stories/2005080400461200.htm

Back Upside potential for world cotton market

G. Chandrashekhar

Mumbai , Aug 3

AFTER a year of record crop and large stocks, global production and consumption of cotton are projected to be in a state of fine balance in 2005-06.

The world cotton market would primarily be driven by China whose imports are forecast to double from the previous year's 1.35 million tonnes. Prices, no wonder, are set to become more producer-friendly; although the rise would largely be reined-in by massive opening stocks. Export opportunities for Indian cotton would depend, in addition to quality, on the volume of output, which on current reckoning is likely to fall below the record 240 lakh bales of 2004-05.

From an estimated world cotton area of 35 million hectares (down 2 per cent), world cotton production is forecast to decline by 2.1 million tonnes (mt) or 8 per cent to 24.1 mt in 2005-06, still the largest crop on record, according to International Cotton Advisory Committee (ICAC).

On the consumption side, the Washington-based agency sees a marginal deceleration in growth with world consumption placed at 23.9 mt (23.4 mt).

Supplies would be comfortable with an opening stock of 10.5 mt for the new season. World cotton exports are projected to surpass 8 mt for the first time in 2005-06, with imports into China forecast to reach an unprecedented 2.8 mt (1.35 mt).

The recent revaluation of Chinese yuan by 2 per cent is expected to have a marginal impact on China's textiles and apparel exports, benefiting its competitors without stemming flows into import markets, ICAC said adding that China's textiles industry would serve as the locomotive for world mill use.

Market fundamentals suggest the Cotlook A-Index will average 65 cents a pound, 13 cents or 25 per cent above the previous year's average, the agency pointed out.

Although world cotton prices have an upside potential, not many are sanguine about prices significantly above 60 cents per pound sustaining for a length of time. Despite lower production during the year, record-opening stocks would dampen any move towards a strident price rise.