Indian export ban to pull international cotton prices in FY13 – InvestCap Research
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Indian export ban to pull international cotton prices in FY13 – InvestCap Research

Karāchi : Pakistan | Aug 16, 2012 at 5:05 AM PDT
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Highlights

• High opening inventory keep cotton prices at low side in FY13

• Cotton imports slides by 16%YoY to 37.2mn bales during FY13

• Cotton prices expected to remain stagnant during FY13

In today’s Value Seeker, we present the cotton price outlook for FY13 and impact on local textile sector.

High opening inventory keep cotton prices at low side in FY13

Although global production is expected to be down by 7%YoY to 114.1mn bales (1 bales = 480lbs) and consumption up by 3%YoY to 108.2mn bales ending stock during FY13 of 74.7mn bales (highest in the history) is foreseen to keep cotton prices at bay during FY13.

As the biggest cotton consumer, China’s consumption is expected to be down by 2.5%YoY to 39.0mn bales as demand of cotton from textile companies is falling due to lower export expectations. On the other hand we expect India’s consumption to spike up because the Indian gov’t is foreseen to provide higher support prices to restrict Indian supply in the international markets; this can very well impact the global supply side for exports. The Cotton traders in India are also of an opinion that gov’t would impose ban on cotton exports due to limited supply as people expect drought situation to arise due to lesser monsoon rains in India. In addition to that, cotton consumption of countries like Pakistan and Turkey is also anticipated to 11.0mn bales (up 9% YoY) and 5.6mn bales (up 6% YoY) respectively.

Cotton imports to slide by 16%YoY to 37.2mn bales during FY13

Overall, the overall import of cotton is also expected to go down by 16%YoY to 37.2mn bales during in FY13. As the major cotton importer China is expected to have 35% share of total world cotton imports, down by massive 20pps. However, cotton imports from Bangladesh and Turkey is expected to up by 12.5%YoY to 3.6mn bales and 30%YoY to 3mn bales respectively.

Cotton prices expected to remain stagnant during FY13

With the expectations of record backlog of cotton during FY13, cotton prices are estimated to be under influence of this excess cotton inventory. However, if India bans its exports as it did last year then the short term up trend could be seen in the international prices. As the follower of international prices, the local cotton prices are also witness up trend during FY13. Currently, internationally cotton is being traded at USD72.09cents/lb as it has touched 3-year lowest level of USD 65.36cents/lb on June 06, 2012, however, likely ban of cotton export from India is expected to further pull the international cotton prices. On local front, cotton prices remained on low side as during FY12 a cotton mound was traded at ~Rs5817/37.5kg, while closed at Rs5800/37.5kg on last trading day. With all the above said facts we estimate local cotton prices could fall between the ranges of 5800~6000/37.5kg during FY13. However, with the low prices during FY13 the world harvested area during FY14 could be down drastically therefore, we estimate the cotton prices during FY14 to be better then FY13.

MrsSalmaZuberi is based in Karāchi, Sind, Pakistan, and is a Stringer for Allvoices.
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