Global cotton prices to stay firm on low stocks: ICAC

Global cotton prices, which have been at their peak since August 1997, are likely to remain firm with global stocks projected to fall during 2007-08, the International Cotton Advisory Committee said in its latest report.

During February 2008, the Cotlook A index rose to 81 cents a pound from 72 cents, the highest level since August 1997.

The average 2007-08 (October-September) Cotlook A Index at the end of February 2008 was the highest since 1997-98 and equals the 30 year average recorded between 1973-74 and 2002-03, the ICAC statement said.

It said considering the trends in the Cotlook A Index during the first seven month of 2007-08 and assuming that the Cotlook A Index fluctuates between 76 and 83 cents a pound during the rest of the season, the Index is expected to average 74 cents a pound during 2007-08.

India, one of the largest producers of cotton in the world, is likely to produce 30.1 million bales (one bale = 170 kg) during 2007-08 against the 20.7 million bales in 2006-07, said Arun Dalal, an Ahmedabad-based cotton trader.

He said it was likely that the country's cotton exports this year would reach 7 million bales against 5.5 million bales in 2006-07 seeing the initial demand from China, Pakistan and Bangladesh.

Prices of Sankar-6 variety, grown in Gujarat and exported to China, Pakistan and Bangladesh, are also witnessing a rally.

ICAC said given that world ending stocks are expected to fall further during 2008-09, the upward trend in cotton prices is expected to continue, ICAC said.

World cotton ending stocks are projected to decline during 2007-08 by 1.1 million tonnes (9 per cent) to 11.5 million tonnes, with consumption outstripping production.

The Cotlook A Index averaged 70 cents a pound during the first seven months of 2007-08, 11 cents higher than during the same period last season.

World mill use is projected to exceed production again in 2008-09,and stocks could fall by 7 per cent to an estimated 10.7 million tonne, the committee said.

The fundamentals of cotton supply and use alone would suggest a season-average Cotlook A Index of less than 70 cents per pound in 2007-08.

However, based on trends in prices during the first seven months of 2007-08, it is obvious that prices will be higher.

Price rise in competing crops and the growing role of commodity investment funds might be affecting cotton prices apart from fundamental factors such as cotton supply and use.