Market Review (June 21st to July 05th, 2012)
The international cotton prices fell during the fortnight due to a firmer dollar and sour tone to commodity markets depressed fiber contracts keeping cotton on the defensive. Fundamentally, the market is looking at plentiful supplies and weak cotton demand, which makes it tough to sustain any advance in prices. The benchmarks Oct contract on ICE futures U. S. lowered 1.40 cents to close at 70.75 cents a pound, traded between 79.02 to 66.17 cents per lb.
According to the ICAC report the global 2012-13 cotton production is forecast at 24.9 million tons, down by 8% from this season; the decline in prices during 2011-12 has driven cotton plantings down this year in many countries. Global stocks are expected to expand by 10% in 2012-13 to 15.10 million tons. In fact, global cotton mill use is estimated down by 7% to 22.70 million tons, the lowest in eight years. High and volatile prices and a slowing global economy drove demand for cotton yarn down. In China, the area sown appears to have met expectations, and conditions have been broadly favourable for the early development of plants, despite reports of some extreme weather events in some localities. In Pakistan planting is also virtually complete, following some delays which may contribute to a late harvest. The prediction of regular monsoon rains to appear in the first week of July augurs well for the crop.In India, cotton prices rose higher on good demand from yarn makers and concerns over farm output triggered by scant rains in key growing regions.
Lower rains in key growing areas, which could impact sowing is also supporting the prices. The rains were below average and failed to cover as much of the country as they should have, fanning concerns about output of crops despite reassurances. The area planted to cotton in India's biggest producing state of Gujarat is likely to dip to 2.5 million ha this year against more than 3 million in 2011. In the neighboring state of Maharashtra, farmers have so far been able to plant cotton on only 10% of the normal sown area of about 4 million ha. Cotton supplies in the spot markets are also tight as arrival season has come to an end.
Outlook
The global cotton prices are bearish due to euro slumped to a one-month low versus the dollar after the European Central Bank cut its main interest rate to a record low. The improved Chinese demand will boost cotton imports, but not enough to offset the expected drop in demand by China, which now holds large stocks. However, most other large exporting countries will experience a decline in their shipments due to a smaller crop and increased competition for a reduced export pie. In India, the planting pace was lagging behind. There are concerns that if rainfall doesn’t increase to regular monsoon levels during the first half of July, the production outlook may be affected mid-month. The domestic market’s cotton prices may remain range bound in the coming days.
