April 27, 2012

 

World cotton prices to relax as India's insufficient exports up prices

 

 

After China finished filling its state reserves, World cotton prices will ease and stay in a narrow range while a lack of exports from India helps prop up prices, industry experts said.

 

The major factor that could drag down prices was the end of China's purchases for its state reserves, Terry Townsend, executive director of the International Cotton Advisory Committee (ICAC), told Reuters.

 

"Nobody knows for sure, but I think cotton futures prices could drop by US$0.20-0.30 per pound in 2012-13," added Townsend, who was speaking on Thursday (Apr 26) at an industry conference in Thailand.

 

China completed its domestic stockpiling plan by March 31, after buying 3.13 million tonnes of cotton for state reserves, accounting for nearly half the country's 2011 harvest.

 

July cotton on the ICE Futures US exchange fell US$0.66 to close at US$0.9080 per pound on Wednesday. It had ended the first quarter up nearly 3%. US cotton futures struck a record above US$2.20 a pound in March last year as investors bet on the fibre, partly led by strong demand from China and limited supply from India after rains hit the harvest.

 

But cotton ended 2011 as the worst-performing commodity market of the year, falling 37% from 2010 as record prices boosted output and decimated demand, while a shaky global economy scared off investors.

 

Demand for natural cotton was expected to drop as there were other cheap chemical alternatives available, Townsend said, while cotton production faces higher costs, due to rising land prices and a shortage of labour.

 

The rate of growth of cotton demand in China fell to 5% in 2011, while demand for other chemical fibres rose 10%, data from the country's National Cotton Monitor Method System shows.

 

Chinese cotton demand grew strongly in the 1990s in line with the textile industry and peaked in 2008 at a record of 7.99 million tonnes. It has then fallen gradually, by 0.7% a year since late 2008, after the global financial crisis.

 

"With weak demand at home and abroad, it is difficult for consumption and prices to return to the previous high levels," said Feng Mengxiao, Chief Information Officer of China National Cotton Information Centre.

 

World cotton prices are expected to slip slightly in coming months, but should still be supported by a lack of Indian exports, another analyst, Christ Kramedjian of INTL FCStone, said.

 

"I expect New York cotton futures prices to stay around US$0.87-0.88 per pound as demand should stay and an absence of Indian exports should prevent prices from falling in the coming months," he said.

 

India has halted new cotton exports since March, after traders shipped a record 11.5 million bales of 170 kilogrammes each, outstripping an earlier projection of eight million bales.