Cotton to remain firm on higher Chinese demand

MARKET OUTLOOK

Prices of cotton are expected to remain firm in the wake of higher export orders from China. Cotton prices saw 15 per cent rise across all varieties on fresh export orders from China last week.

Although China's import quota has exhausted for the current financial year, experts believe the new quota will be announced by March after the final estimates of cotton production in the country are made.

Exporters hope to cash in on China's voracious appetite for cotton to meet its growing textile demand. Consumption in China soared from 6 million tonne in 2002 to 9.7 million tonne in 2005.

According to sources, India's textile exports to China could have seen a massive jump but for the unprecedented delay in letters of credit by banks.

Chinese banks are hesitant in issuing letter of credit, a mandatory paper to execute export orders, owing to the lack of clear instructions from the Chinese authorities.

About 4,200 tonne of cotton are ready for exports to China at various local ports. The country has so far exported about 25 lakh bales (of 170 kgs each) to China and other South Asian countries.

J N Singh, textile commissioner and chairman of the Cotton Advisory Board, said that prices were expected to remain firm despite the 10 per cent higher production estimated for the year. "This is due to higher fibre consumption in the domestic market and lower production in the US, Pakistan and China," he said.

According to the figures released by the board, Maharashtra's production will go up by 52 per cent to 55 lakh bales, while Punjab is likely to produce 35 per cent more cotton to 27 lakh bales this season.

Chandubhai Thakkar of Perfect Cotton said prices might see a further upward trend. However, everything depends on demand from China and the domestic textile sector, which has been gradually picking up.

Cotton prices have witnessed a mixed trend in Mumbai. While Ira rose marginally by 3 per cent in January to Rs 4696 a quintal, Shankar 6, a popular cotton variety, jumped to Rs 5062 per quintal towards the end of the month against Rs 5033 a quintal in the beginning. Prices of Bengal Desi, however, slumped by 5 per cent in the period under consideration to Rs 3768.

The Cotton Advisory Board, the state-owned body to estimate cotton production and consumption, expects production in the October-September season to go up to 270 lakh bales. This is 10.65 per cent higher than the last year's estimated production of 244 lakh bales.