Cotton Reserves Auctions Touch 57% of Release Plan but Prices Rally

1. Increased demand

China's cotton textile industry saw a continue increase in cotton yarn production in the first half of 2010. Looking further, from January to June, output of cotton yarn and cotton blend yarn reached 9.7192 million and 1.2414 million tons, up 15.84% and 13.71% respectively from the previous year's period.

2. Limited Supplies

The crop in China is in worse condition this year than at the same time in 2009, the official Xinhua News Agency reported. Rain in growing areas may hurt fiber quality and cause rotting in some of the unharvested cotton in open pods, or bolls, Drew Lerner, the president of World Weather Inc., said in an interview today.

The export restrictions in India, the world��s second- largest grower, are significant. India will limit exports to 5.5 million bales in the season that starts Oct. 1 and will impose ��prohibitive�� duties on shipments above that level, Commerce Secretary Rahul Khullar said earlier this month. The registration of export contracts will start Oct. 1, two weeks later than planned, Textile Secretary Rita Menon said yesterday.

The cotton output in Pakistan is likely to be lower by 18.5 percent because of floods, PCGA Chairman Haji Muhammad Akram told. According to him, devastating floods and heavy rains severely damaged the cotton crop in the country. Flood-affected areas in Punjab are estimated at 1.415 million acres (1415.6 thousand acres) while in Sindh it is about 303.2 thousand acres. The total area damaged is calculated at about 1.719 million acres (1719.8 thousand acres). Pakistan's cotton crop production is estimated at 11.5 to 11.7 million bales by considering the crop damage in Sindh and Punjab. About 1719.7 thousand acres of cotton crop has been estimated to be affected by floods and the remaining 6035.9 thousand acres of crop is estimated to be safe out of the total sown area of 77.59.6 thousand acres.

Global cotton stockpiles will drop 3.3 percent to 45.4 million bales at the end of the marketing year on July 31, U.S. Department of Agriculture data show. That��s equal to 38 percent of demand, the lowest ratio since 1994. A bale weighs about 480 pounds (218 kilograms).

Uncertainties linger on

Chinese cotton market still looks bullish, though a number of uncertainties linger on. Tight supply from cotton imports, fast growth of cotton yarn exports, and the delayed cotton planting will support cotton price. Cotton prices have been increasing at an unprecedented level in China. Prices have been going up internationally as well. Cotton spinning mills face a challenging environment in high purchasing prices where it may be difficult to pass higher material costs on to higher yarn prices. Besides, yuan appreciation could may pull down the performance of Chinese cotton textile industry in the second half of 2010. Chinese cotton textile industry will see a continue recovery but risks still exist.