Market Review (Feb 6 to Feb 20, 2012)
The international cotton prices tumbled in the fortnight due to higher beginning stocks and production estimates. The benchmarks March contract on ICE futures US lower 5.00 cents to close at 91.40 cents a pound, traded between 90.0 to 97.91 cents per lb.
The increased Indian supply is major contributor for the additional stocks of 1.6 million bales, in estimated 2011-12 world beginning stocks in the February as per USDA's report. As per report global consumption for 2011-12 was reduced by 2.85 lakh bales. Higher estimates for world beginning stocks and production, together with a decrease in consumption, led February's forecast for 2011-12 ending stocks to increase 2.4 million bales relative to last month.
The expectations that ending stocks will increase by 13.80 million bales this crop year is representing the largest addition to world ending stocks since 1984-85. The magnitude of the 2011-12 surpluses can be seen as a product of market reactions to the record prices in 2010-11. The market reaction to high prices is lower demand. This pressure, when paired with consumer resistance to rising retail prices, led to reduced order volumes.
In China, cotton prices may face downward pressure after the government's purchase of the crop is likely to end up in March. Cotton imports are likely to reach 4.22 million tons in the 2011-12, up 64 per cent from the same period the previous year. While the crop's output is estimated at 7.55 million tons in this crop year, up 21 per cent as compared to last year. The stocks will be 5.28 million tons in 2011-12, more than twice the 2.13 million tons in 2010-11.
On domestic front cotton prices eased due to moderate demand. The most popular Shankar-6 variety traded lower by Rs 500 per candy at Rs 35,800 to 36,300 per candy across Gujarat state while Rs 35,600 per candy in Maharashtra.The cotton production for 2010-11 increased to 10.00 lakh bales and Indian beginning stocks for the current 2011-12 crop year increased 15 lakh bales.The pace of arrivals has been increasing but cumulative arrivals are still lower as compared to previous year.The per day arrivals are now in the range of around 2.15 to 2.20 lakh bales as against 1.70 to 1.75 lakh bales corresponding period last year.
Outlook
The downtrend in global cotton prices is due to fall in demand from mills and exporters. Mills had already built up cotton stock for the medium term and on the other hand demand for textile goods is decreasing. Exporters are facing difficulties to catch up the buyers in world markets which turned bearish since world cotton production was forecast to surpass consumption.The current crop in (Australia, Brazil and Argentina) will strengthen the oversupply situation of new crop in global markets. In India cotton cumulative arrivals are still lagging behind than the last year’s arrivals. The demand in export is less due to limited orders from overseas buyers. So the cotton prices may remain steady in the coming days.
