Market Review (July 21th to Aug 05th, 2012)
The international cotton prices rose during the fortnight as fears about a drought in India. However, the world’s largest cotton merchant China will continue to stockpile fibers into next year offset concerns about the global surplus. The benchmarks Oct contract on ICE futures US rose higher 0.66 cents to close at 72.81 cents a pound, traded between 69.01 to 73.23 cents per lb.
According to ICAC report the world cotton production is forecast down by 9% to 24.7 million tons in 2012-13. Global cotton mill use is projected to increase only slightly to 23.2 million tons, as the rate of global economic growth is expected to remain slow and because the high domestic cotton support price in China is encouraging mills there to shift toward alternative fibers. In 2012-13, the resulting excess supply of 1.6 million tons will cause global stocks to rise by 11% to 15.2 million tons. Cotton output in China, the world’s top producer, consumer and importer of the fibre, is expected to exceed the government’s 2012 target of 6.99 million tonnes, which is already up nearly 6% from a year ago. The higher-than-expected production, up from 6.6 million tonnes in 2011, could weigh on domestic prices and dent China's appetite for imports should overseas prices become uncompetitive.
In India, cotton prices firmed with moderate demand. Due to short supply even as demand from domestic mills was limited. The most popular Shankar-6 variety traded marginally higher by Rs 200 per candy at Rs 37900 to 38200 per candy across Gujarat state while Rs 37600 per candy in Maharashtra. While August rains could spur farmers to plant more cotton, persistent dry conditions at this late stage suggest that planted area will drop further. Yields are also expected to drop further to 480 kg per ha, lowering production to 30 million bales, down 700000 bales from the current estimate. Based on lower production prospect, exports are also expected to decline to 5.4 million bales 2012-13 from 12.68 million bales last year. Monsoon is deficient by 20% so far. Dry conditions persist in key cotton growing states of Gujarat, Maharashtra and certain areas of Karnataka.
Outlook
The global cotton prices are bearish due to supply and demand fundamentals, showing that plenty of cotton should be available to users here and around the world. US weather remains neutral for cotton as temperatures have cooled and as parts of the Delta and Southeast have seen rains in the last week and as temperatures have moderated at least a little bit. The Chinese government announced a slightly higher minimum support price for this year and is expected to buy a large portion of the new cotton crop. There is hardly any stock in the Indian market against the rising demand which is an off season. Meanwhile, the production of cotton is estimated to drop on lower acreage under crop and on bad weather. The domestic cotton prices firmed up with deficit monsoon in many of the cotton growing areas.
