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G. Chandrashekhar

Mumbai, Nov. 4

IT is a paradoxical situation for the world cotton market. Despite supplies (opening stock plus production) during 2005-06 slated to reach the largest in history, prices are likely to remain relatively firm. China is the market driver with record imports forecast. World cotton exports, too, are set to register significant gains.

Market fundamentals suggest that Cotlook A-Index will average 61 cents a pound in 2005-06, 9 cents above the previous average, the Washington-based International Cotton Advisory Committee (ICAC) said.

The Cotlook A-Index averaged 52.2 cents per pound in 2004-05.

China's import requirement is projected to more than double to about three million tonnes, up from 1.4 mt in 2004-05 as rising consumption requirement is unmatched by domestic production. China's cotton output is likely to be down 9 per cent in 2005-06 from previous year's record to 5.77 mt.

Global mill use is forecast up 3 per cent to 24.2 mt, while exports are projected at 8.4 mt. Ending stocks are forecast to rise to 11.1 mt by the end of the season, the highest in 20 years, according to the ICAC.

World cotton production is projected down 5 per cent to 25 mt from last year's record 26.25 mt with output down in both China (9 per cent) and the US (2 per cent).

On the other hand, India is seen harvesting the largest ever crop of 255 lakh bales (of 170 kg each), up from last year's 232 lakh bales. This is in addition to a huge opening stock of over 60 lakh bales.

Market arrivals in October were an estimated eight lakh bales, mainly in the northern region. In November, about 25 lakh bales are expected to arrive while December will see as much as 45-50 lakh bales coming to the market, according to Mr Shirish Shah of Bhaidas Cursondas and Co.

Considering that domestic consumption of cotton could at best be about 220 lakh bales, there is the strong possibility of a huge inventory overhang.

Firm international prices are likely to open a window of opportunity for cotton exports from the country; but not many are sanguine that export volume would be in excess of 25 lakh bales. Infrastructure limitations would make export in larger volumes difficult, traders said.

Domestic cotton prices are expected to come under downward pressure when the momentum of arrivals picks up after November. Mills are waiting for the market to decline.

China is seen as a potential market for Indian cotton.

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