India, China demand put cotton to new era of higher prices

AMSTERDAM (Commodity Online) : Growing demand from China and India helped cotton prices to climb new scales as futures in the fibre revived to set a fresh record high, said Rabobank.
In its latest report the Bank said cotton has entered a "new elevated price environment" thanks to China and India’s growing demand.
Expectations of a rise in sowings to ease tightness in cotton stocks - which in the US, the top exporter, have fallen to their lowest in at least 50 years – may prove premature, given the limited number of producers of the fibre and competition with other crops.
Some "90% of the global supply of cotton is produced in eight countries, exposing the industry to significant weather risks and supply uncertainty", the bank said, noting that farmers in some of the smaller producing countries, whose ranks include Turkey and Turkmenistan, may still be facing tight credit conditions.
Meanwhile, demand was being stoked by China's turn from neutral balance of cotton trade at the start of the 2000s to a position as a large net importer.
Cotton's stocks-to-use ratio – a key measure of the availability of supplies, and therefore of the prices they are likely to command – is "expected to remain largely unchanged over the next two years, which will keep the market precariously tight and supply-side risks well elevated", Rabobank said.
"Perhaps these higher prices can last longer than we thought."
In fact, prices, which hit a fresh record high of 167.89 cents a pound in New York on Tuesday, well over double those a year ago, are in real terms not as outlandish as some commentators believe. Factoring in inflation they are in line with those of the last peak, in 1994-95.
"Given mills have weathered these real price levels before, it is likely they will be able to withstand them again.
"Perhaps prices may need to rise near 200 cents a pound before heavy rationing occurs. We expect prices to remain well above long-term averages and believe the risks to prices remain skewed to the upside in the near term."
Even looking further ahead, China's need for imports could keep a squeeze on supplies, given growing consumption in India, the second-ranked cotton exporter, of its own crop.
"China is expected to average 9.5% GDP growth and India 8.2% GDP growth from 2011-15," the bank said.
"Strong rates of growth are expected to support Indian cotton demand domestically, which will reduce the availability of cotton from India to the global market.
"The dynamics of Chinese cotton trade is shifting the market into a new elevated price environment." the bank added.

(Source: http://www.commodityonline.com/news/India-China-demand-put-cotton-to-new-era-of-higher-prices-36005-3-1.html)