World Cotton Demand Expected to Improve as Prices of Polyester and Cotton Converge : ICAC

Texprocil has urged Cotton Corporation of India to buy from the market when prices here are cheaper than abroad and offload when these breach international prices. It would, they say, benefit farmers and mills. Globally, cotton prices have fallen to a five-year low.

After international cotton prices spiked in 2010/11, many spinners decreased the share of cotton in yarn in favor of greater use of polyester. At the start of 2013, the gap between cotton and polyester prices widened. Polyester prices remained fairly stable at around 74-76 cts/lb for most of 2013 and 2014 until dropping to 65 cts/lb in April of this year. During the same period, international cotton prices climbed higher, reaching 99 cts/lb at their peak.

However, the situation changed significantly in July 2014, with the Cotlook A index falling to 80 cts/lb while polyester has climbed back up to around 73 cts/lb. Furthermore, the price of cotton in China has also fallen from around 141 cts/lb during most of 2013/14 to around 126 cts/lb in the last few weeks. With polyester and cotton prices converging, world consumption of cotton is forecast to increase by 5% to 24.5 million tons in 2014/15. Consumption in Asia is expected to grow strongly in 2014/15, led by China’s 5% increase to 7.9 million tons. India’s consumption could grow by 6% to 5.4 million tons. The rest of Asia is projected to expand by 8% to nearly 2.4 million tons.

World production in 2014/15 is forecast to be 25.5 million tons, down from 26.1 million tons in 2013/14. Although the monsoon has arrived in India, the volume of precipitation has varied widely and yield is likely to suffer in some places. India’s production is expected to be just over 6 million tons in 2014/15. On the other hand, China, whose average yield is nearly three times higher than India’s, is expected to produce around 6.2 million tons. The United States has experienced abundant rains this season, and its production is projected to grow to nearly 3.5 million tons.
Trade is forecast to decline by to 7.9 million tons in 2014/15, driven mainly by a 26% fall in imports by China to 2.2 million tons. India’s exports are likely to fall to 800,000 tons, which would be less than half of its exports in 2013/14. Exports from the United States are forecast to rise by 9% to 2.5 million tons in 2014/15.

The Chinese government will close out 2013/14 having sold around 2.3 million tons of cotton, which is 37% of the 6.3 million tons purchased this season. As this is the second successive year in which total purchases by the government exceeded sales, government stocks have increased again and are estimated to hold 11.4 million tons. China’s total ending stocks are around 11.9 million tons. World stocks outside China are up by 6% to 8.6 mn tons. This is the largest volume of world ending stocks outside China since 2007/08, when they reached 8.8 mn tons, and is weighing heavily on prices for 2014/15.

India’s Cotton import likely to double this year

Cotton import in India is likely to double this year, due to the higher prices in the domestic market than abroad.

The Confederation of Indian Textile Industry (CITI) estimates the cotton import at 1.5 million bales (a bale is 170 kg) in the current cotton year (Oct 2013-Sept 2014), as compared to 0.7 million bales the previous year.

“Cotton is selling in India at four-five per cent premiums, said D K Nair, secretary-general of CITI. “The sea transport cost from Africa to southern ports is drastically lower than surface transport cost from the central and western Indian states.” Indian mills have signed contracts with African suppliers for all types of cotton imports.

The benchmark Shankar-6 variety is trading at Rs 11,642 a quintal, in comparison with the landed cost in southern ports at Rs 11,000 a quintal.

Prices in both domestic and international markets declined two to three per cent in the past week. The trend is likely to continue, due to lower demand from China. That country is a perennial importer from India but it is not buying the quantity of both cotton and yarn as in earlier years. Cotton demand from the domestic market has also fallen in recent months, due to a slump in consumption from yarn producers.

Prices are likely to remain subdued. Reflecting the trend, cotton on the InterContinental Exchange is quoted lower for delivery in November and December, compared to near-month contracts.

Texprocil, despite the slowing exports, reported yarn exports at 293.6 million kg in the first quarter of the current FY (2014-15), compared to 279.3 mn kg in the same period last year.

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