Financial Daily from THE HINDU group of publications
Friday, May 10, 2002
Agri-Biz & Commodities
Global cotton may firm up on short supply
MUMBAI, May 9
DESPITE the recent dip in global cotton prices, optimism about the market firming up in the new season is gaining ground, thanks to the emerging possibility of world production trailing consumption demand.
Interestingly, by April-end, the Cotlook A-Index relapsed to below 40 cents per pound and the average so far this season is 41.3 cents per pound. This followed record cotton output of 21.1 million tonnes, up 1.7 mt from last year.
According to the International Cotton Advisory Committee (ICAC), the 29-year low prices have reduced planting intentions in the northern hemisphere. Nevertheless, world cotton area is expected to decline by only 4 per cent due to the sustaining effect of government measures.
Next season, world production is expected to decline by some 9 per cent and will likely be around nine lakh tonnes below world consumption. Also, net imports by China are expected to increase seven fold from the current year's estimated 50,000 tonnes.
As a result, international cotton prices, as measured by Cotlook A-Index, are expected to average 52 cents in 2002-03, eight cents higher than the average level expected for this season, ICAC said.
Interestingly, in the context of the emerging situation, India's cotton imports next year could become expensive because of increase in international prices and depreciation of the rupee.
However, this should not cause any alarm if the country's cotton production remains satisfactory.
Cotton output in the country depends to a significant extent on southwest monsoon. There is reason to believe that cultivation of genetically modified cotton (Bt cotton) is also likely to ward off bollworm attack and improve yields, albeit in a limited area.
Higher international prices together with possible lower imports are likely to keep domestic cotton prices at a level attractive for growers.
On the global demand side, the textile industry will be positively affected by better world economic prospects. Polyester fibre prices are rising, improving the competitiveness of cotton fibre, and cotton yarn prices are also on the rise, improving the profitability of the spinning industry.
As a result, world cotton mill use is projected up four lakh tonnes in 2002-03, climbing from 19.9 mt this season to a record 20.3 mt next season, according to ICAC.
Governmental measures encourage cotton production. The level of direct assistance to production provided by governments is estimated to have increased from $3.8 billion in 2000-01 to $ 4.4 billion in 2001-02.
According to ICAC, 59 per cent of world cotton production is benefiting in the current year from direct income or price support programmes.
It is estimated that a removal of direct subsidies worldwide would have had a net positive effect of 31 cents on international cotton prices in
2001-02. Given the generous provisions of the proposed farm bill for farmers and for consumers, it is clear that the US will remain a major producer and exporter of cotton at least from 2002-03 through 2007-08, ICAC pointed out
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