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Tuesday, 31 December 2013

Cotton: A Steep Revival on Cards amidst Global Shortage

Domestic Scenario

The Cotton Association of India (CAI) estimated the 2012-13 seasons’ cotton production to be 35.3 million bales (170 kg each). The biggest producer of Cotton in the country is Gujarat (34.09 per cent) followed by Maharashtra (20.45 per cent). Other major producers of Cotton in the country are Andhra Pradesh (13.92 per cent), Haryana (7.53 per cent) and Punjab (6.53 per cent). The opening stock for the next season will be 4.25 million bales while the total supply is estimated to be 43.2 million bales. 

International Scenario

Global cotton production is estimated at 25.6 million MT for 2013-14 while consumption is forecast at 24 million MT leaving a surplus of 1.6 million MT, according to International Cotton Advisory Committee (ICAC). Based on China’s 2012-13 cotton estimates, consumption at 8.3 million MT, ending stocks at 9.4 million MT, of which 7.8 million MT are in the national reserve. Production in the United States is falling because of dry weather in some states and high prices of maize and soybeans. Pakistan, Brazil, Uzbekistan and most other countries are expected to produce about as much cotton in 2013-14 as they did in 2012-13. Cotton is expected to continue to lose market share this season to polyester. Despite the loss of market share, world cotton consumption is rising in absolute terms and is estimated at 23.7 million MT in 2013-14. 

Price Trend Analysis

The cotton spot market price variation study indicates that the prices have always been rising in the month of April, all the way till June; thereafter a drop in the prices takes place owing to onset of the sowing season. The demand for cotton improves from the month of September which initiates the upswing in the prices which continues till January owing to increased export demand. World cotton mill use is projected to decrease from 23.8 million MT in 2012-13 to 23.4 million MT in 2013-14. However, world cotton production is likely to exceed mill use for the fourth consecutive season in 2013-14. Consequently, ending stocks are expected to increase from 17.9 million MT to 18.7 million MT. As of June 2013, 9.2 million MT of cotton are estimated to be held by the Chinese national reserve. World trade in cotton is forecast to decline by approximately a million MT to less than 9 million MT. This decline is almost entirely accounted for by reduced imports into China. Shipments from all major exporters are expected to fall, except from the CFA zone where producers are increasing production in 2013-14, and thus exports, in response to higher cotton prices.

As per the study, the prices have been subdued till April 2013. The prices have recovered since then amidst reports of increased demand. However, the prices have again taken a back seat amidst weakening European Demand which has eaten away the comparative advantage enjoyed by the Indian exporters. The retail and stockists are growing up and is expected to improve with the advent of the winter season. In the 2013-14 cotton season, the natural fibre exports from India are expected to remain strong. Seeing the improving trading outlook, the prices are expected to continue on the bullish with few short term dips. 

Production & Price Forecast 

The current year's cotton production is estimated to be 35.3 million bales as against the increased estimate for the next year (Oct 13-Sept 14). The current estimates by CAI for next year’s crop show an overall increase of 1.83 million bales. The State of Gujarat is estimated to produce 11.15 million bales putting it at the number one spot. Maharashtra’s production is estimated at 7.5 million bales and Andhra Pradesh comes third at 6.75 million bales. The market is expected to remain bullish for the year 2014 and the NCDEX Kapas is likely to test INR 1400 from the current levels of INR 950 per 20 Kg.

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