KARACHI - After witnessing a slump in early part of the year, cotton prices seem to have stabilised in recent months, said market observers. This is despite re-emergence of global economic slowdown, credit crunch situation in China and surplus global cotton inventories (approximately 9.8 million bales), they added. “Contributing factors to prices stability are China’s reserve programme for cotton procurement and expected switch from cotton to high yielding soybeans and corn crops,” viewed Furqan Punjani of Topline Securities.
Overall, the analyst said, lint prices during last couple of months had remained in range of $0.9-1.10/lb and same trend was expected to prevail in next couple of months. Being hurt by inventory losses by carrying high priced cotton lint, outgoing quarter was one of the toughest for local spinners, he said. Stabilisation in commodity prices during ongoing quarter has reduced risk of another round of inventory losses, thus normalising gross margins scenario. Though lately monetary tightening has become a major concern for entire industrial sector in China, but due to promising export pattern of textile industry demand for the crop seems stable.
This is evident from the fact that government of China has shown a consideration to build up their depleted inventories only a few cents below current price levels. With cotton consumption in China expected to remain firm at 45.5 million bales (39 per cent of global consumption) cotton lint prices are anticipated to stand firm in upcoming months. Moreover, change in supply side dynamics as farmers have started to rate soybeans and corn crop over cotton for next sowing season in China would also stand as a major prices supporter in long run. Unexpected slow down in volumetric sales in both exports and local markets during FY11 on account of record (post US civil war) cotton prices forced spinners to carry forward huge inventories procured at higher prices.
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