Will cotton prices continue surging in December?
It appears so that cotton prices will continue surging in December, driven by tightening global stocks and led by an ever-increasing consumption. The World carryover stock will fall much more than most expectations. Basically, demand will move the market, and the US cents 71-72 level can be the established new bottom.
The ever-increasing cotton consumption – coupled with smaller crops in India, Pakistan, China and Australia – have created a very tight situation in the availability surplus for world trade. In the process, US is gaining an increased share of this trade. Additionally, it creates a scenario of declining world carryover, as we see the world stocks reduce for the fourth consecutive year. Indian crop Is estimated to drop by as much as 1.5 million bales below the USDA estimate.
Prices in Pakistan have been rising the fastest among key global benchmarks.(See chart). If the KCA spot rate is indexed to January numbers, December will end with index at 102.2, implying that price levels will be higher from where they began 2017. While other benchmarks US Futures will end at 97.8 and Cotlook at 98.9. Comparatively, Indian cotton will be much cheaper with year ending at 91.7.
The massive drop in Indian cotton prices can be explained by the aberrated high levels in January when trade was disrupted by the government’s demonetization policy. Usually, prices are at their seasonal trough during the month when arrivals approach marketing peak. Arrivals are still slow this year in India with just 1.70 lakh bales reaching mandis daily in early December, when it should have crossed 2.25 lakh bales. Also compared to 1.30 lakh bales at the beginning of the season (October), the 1.70 lakh bales number is not a great expansion for prices to soften.
In Pakistan, hunt for quality lint will keep trading active amid firm prices during December. Some buyers will start buying second grade on prices above spot rate; while leading buyers will fortify their long positions by making deals for better grades on back of anticipated short supply of quality grades. Mills will also purchase to consolidate their long positions. In view of widening shortage, the Pakistan government has decided to allow cotton imports from India, though it slapped tough set of rules for consignments from India.
Source: Textile Beacon’s “Global Cotton Price Forecast” report of December 2017
