Suppy scenario in India, world's second largest producer as well as consumer of cotton after China and world's second largest exporter after US, seems to be a little tight due to firm overseas fundamentals and lower than expected arrivals in the domestic market. In domestic market buying from exporters and millers are strong despite higher production estimated for the current season.
While international cotton future rose to 150-year high thanks to strong china imports, US almost exhausted with last year crop, domestic restrictions for fresh exports may all lead to more gain for global Cotton prices. Cotton offers almost 100% return in the last 1-year thanks to lower global production and increasing china imports.
However, this skyrocket prices not likely to sustain at such higher levels and millers buying likely to be slow in coming days due to not increasing yarn prices. On other side still domestic prices is lower by around 15-20 cents compared to international prices and if exports is allowed then we may see more bounce back in domestic cotton prices.
India is likely to produce a record 329 lakh bale of cotton in 2010-11 against last year's 295 lakh bale, according to a senior government official said last week. However, some traders estimates it lower side at 320-325 lakh bale for current season.
Domestic cotton arrivals at spot markets till January 30 in the 2010-11 season rose 6% on year to 19.5 mlllion bale, the state-run Cotton Corporation of India said. India, the world's second largest exporter, had permitted 5.5 mlllion bale for exports from October 1 but met with a poor response because rains hit harvest. An initial deadline was extended until February 25 for 1.7-1.9 mlllion bale which went unshipped. Overseas demand for Indian cotton has increased after bad weather hit crops in China and Pakistan, both leading consumers.
In domestic market farmers have seen holding on to crop in expectations of more price rally in coming days. Earlier it was expected that good crop arrivals from Maharashtra but since last 1.5 months arrivals almost nil which supports domestic prices.
In the global market, Australia's world's 5th largest producer and 4th largest exporter seen 8% lower crop this season due to flood-like situations. In the global market supply only expected from US and India. However, after un-favourable weather, Pakistan not able to export much while Chinas demand seen strong in the global market. However, at US, almost 80-90% of crop is consumed and not much left for export while India's policy for earlier there were hope that's India may allow more cotton exports in its February 10 meeting but it was remain un-concluded & after seeing price rise, we might not get decision in short term also. Because of export curb from India & steady Chinese import rally is expected in international cotton prices. In year 2010 China imported 86% higher cotton then year 2009 and this higher Import also likely to continue for year 2011
According to the latest USDA report, global cotton consumption seen higher at 12.08 crore bales against production estimated lower at 11.67 crore bale. Chinas import estimated around 1.30-1.50 crore bale which may fuel prices throughout the year. This might be a 5th consecutive year when world cotton demand outpaces its supply. Otherside global cotton ending stock also has seen falling in 2010-11 at 45.44 mlllion bale which is down from 46.98 in 2009-10 and 60.44 in 2008-09 year.
Globally all eye on India's cotton export policy and if any positive decision we may see in coming days then again will resulted in one more round of Rally in cotton prices. Only factors against cotton rally is any fall in yarn prices, lower millers buying and fall in international prices. Still new seasons almost 35-40% yet to arrive in market & if there is no clarity from export side then some sharp profit booking expected by end of this month in domestic prices.
