WORLD: Cotton prices to stay low amid global glut
Cotton prices are likely to continue to remain low in the season ahead after an inter-governmental group warned the general outlook for cotton supply and demand looks "bleak."
The latest update from the International Cotton Advisory Committee (ICAC) says global stocks will hit a record 16.4m tons in the 2012/13 marketing year, which ends on 31 July next year.
This is a rise of 17% on last season - and is due in part to factors including slow global economic growth, which is weighing on retail purchases of textile products.
The ICAC also says production remains high, falling just 5% this season despite a sharp drop in cotton prices last year. Above-average prices at planting time, government policies and favourable weather in some major producing countries have all contributed.
The outlook suggests global cotton production and mill use will reach 25.9m tons and 23.4m tons respectively, resulting in an oversupply of 2.4m tons.
While lower cotton prices could boost global cotton mill use by 3% in 2012/13, a geographical shift away from China to other Asian countries is currently underway, the group notes.
This is because the Chinese government's policy of supporting the country's cotton growers with high minimum prices is making its mills increasingly uncompetitive.
China's textile groups are turning instead to imported yarns, which have "increased significantly" since the beginning of 2012, ICSC says.
The Secretariat currently expects cotton mill use will increase in India, Pakistan, Bangladesh, Uzbekistan, Indonesia, Vietnam and Thailand amongst others.
After an unexpected jump in 2011/12, global cotton trade is expected to fall by 21% to 7.7m tons this season due to lower Chinese demand.
However, imports by the rest of the world could rebound by 18%. Exports from most large exporting countries will decline, in particular in India due to increased domestic consumption.
Prices traded on the Cotlook A Index are seen at $0.83 per pound in 2012/13 - around half the average $1.64 recorded in 2010/11 and well below last year's $1.00.
But even this seems optimistic compared with international cotton prices for March 2013 delivery which are trading at $0.71 per pound on the ICE Futures US exchange $0.71 today (5 November).
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