After facing a dull decade, cotton has been making big headlines these days. The rising popularity is stemming from skyrocketing fibre prices in the international market.
The Cotlook-A Index - which is the average of the cheapest five offerings in the international raw cotton market - surged by more than 119 percent last year, and since the start of 2011, it advanced by another one-third to hit $2.33 per pound in recent trade.
The culprits behind the whip up in global cotton market include shrinking global cotton stocks, exports restrictions from India, increased participation by hedge fund industry and a weakening US dollar.
Global cotton production is expected to increase by a whopping 13 percent to 115 million bales in 2010-11, after three straight years of cut in global annual cotton harvest. Yet it may not be enough to ease cotton price as global consumption is expected to accumulate to around 116.6 million bales by the end of the year (ends July), according to USDA estimates.
With global mill use outpacing supplies, the decline in ending-stock will continue to support cotton prices during the ongoing year as the stock-to-use ratio is projected to fall to 36 percent, the lowest level in the past 16 years.
This sounds trouble for textile manufacturers, since, in addition to higher input costs, expensive cotton has lifted their working capital expenditure and interest expenses. But the good part is that the higher cotton prices would entice farmers to plant more cotton in 2011-12, which may taper off the prices next year.
World cotton area will rise by 7 percent to 36 million hectares in 2011-12, the largest in 17 years, and as a result, world cotton production will reach 127 million bales, according to the International Cotton Advisory Committee.
Since global consumption is likely to register nominal growth to around 117 million bales in 2011-12, it would shift the new supply-demand equilibrium to lower price.
But a confluence of factors, such as growing demand for textile products, on the heels of rising prosperity in developing countries (China and India primarily), export restrictions on raw cotton trade and fears of crop losses on account of growing natural calamities, would keep price equilibrium from sliding sharply.
"However, although prices are expected to decline from current record levels, it is likely that prices will stay substantially higher than the average of 60 cents per pound that prevailed during the past decade," the ICAC asserted earlier this month.
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