WORLD: Economic slowdown could weigh on cotton prices

The International Cotton Advisory Board (ICAC) has cut global demand estimates for the fibre, signalling that slower global economic growth and ample supplies could place downward pressure on prices.

 The latest forecast released this week by the inter-governmental group sees world cotton demand for the 2012-13 season, which ends on 31 July, down by more than 510,000 tonnes from earlier estimates. It blames slower global economic growth.

The ICAC described a recent "improvement" in demand for cotton as a "short-term respite." It added that purchases by the Chinese government have also contributed to price stabilisation, but that the medium-term outlook regarding world cotton mill use is "still overcast."

International cotton prices steadied at around $1 per pound in January 2012 after decreasing for almost ten months.

World cotton mill use is projected to be down by 3% in 2011/12 to 23.7m tons - and could begin to rise again the following season if the health of global economy improves.

Global cotton production is rising by an estimated 7% in 2011/12, to 26.8m tons - the largest level of production achieved in five years - but could drop to 24.9m tons in 2012/13 if farmers switch to higher priced grains and soybeans.

The large excess supplies in 2011/12 mean global cotton stocks are set to rebound by a third to 12.3m tons, following two seasons at relatively tight levels. Production is expected to continue exceeding consumption in 2012/13, which could translate into further increases in global cotton stocks, to 12.9m tons.