Skip to Content

Wednesday, November 22nd, 2017

AKD Quotidian about — Cotton Update: Nov13

Be First!
by November 11, 2013 Brokerage

Karachi, November 11, 2013 (PPI-OT): The US Department of Agriculture (USDA) released its cotton world markets and trade report for November on Friday, Nov 08’13.

According to AKD Securities, Ending inventory estimates were revised upwards by 1mn bales (1 bale = 480lbs) over Sep’13 estimates to 95.7mn bales. Global production is expected to clock in at 117.2mn bales with consumption forecast at 109.6mn bales. At the same time, global trade is expected to stand at 38.95mn bales. China’s cotton reserves and the expected release of cotton from the Chinese state cotton reserve towards the end of the current calendar year is weighing in on international cotton prices.

In this regard, Cot look A has declined by 14% from CYTD high of USc98.85/lb in Mar’13 to USc85.05/lb. Going forward, local cotton prices could witness increased pressure if the downward trend in international cotton price persists with spinning margins potentially remaining subdued. In this regard, in the backdrop of pending approval of the EU GSP Plus status and considering the risks related to a sharp decline in cotton prices, AKD Securities prefers composite textile plays such as NML with higher concentration in the value added segment over yarn plays.

USDA report key takeaways: The US Department of Agriculture (USDA) released its cotton world markets and trade report for November on Friday, Nov 08’13. In this regard, there were no significant changes in production, consumption or trade estimates. Ending inventory estimates were, however, revised upwards by 1mn bales (480lbs bale) over Sep’13 estimates to in production and domestic consumption estimates for India. Global production is expected to clock in at 117.2mn bales with consumption at 109.6mn bales while global trade is expected to stand at 38.95mn bales.

China weighing in on cotton prices: China’s cotton reserves and the expected release of cotton from the Chinese state cotton reserve towards the end of the current calendar year is weighing in on international cotton prices. In this regard, Cot look A has declined by 14% from CYTD high of USc98.85/lb in Mar’13 to USc85.05/lb.

While the Chinese government has already stated its plans to change the current cotton policy from a floor price to providing direct subsidies to farmers, reportedly more stringent quality requirements for cotton procurement by the state reserve may result in lower than expected procurement for the Chinese state cotton reserves this year. This has led to speculation in the international market of China offloading some of its inventory towards the end of this year, resulting in downward pressure on cotton prices in the international market.

Local Prices softening: While cotton prices stayed firm in Oct’13 averaging at PkR7,424/maund (Maund = 40kg) prices have come down to PkR6,859/maund during the current month following a decline in the international market. However, Nov to-date average price for cotton is still 12% higher on a YoY basis. In this regard, local cotton discount to Cot look A has increased to 15.5%, close to its 5-year historical average of 15.2%.

Investment Perspective: Going forward, local cotton prices could witness increased pressure if the downward trend in international cotton price persists with spinning margins potentially remaining subdued. In this regard, in the backdrop of pending approval of the EU GSP Plus status and considering the risks related to a sharp decline in cotton prices, AKD Securities prefers composite textile plays such as NML with higher concentration in the value added segment over yarn plays.

The post AKD Quotidian about — Cotton Update: Nov13 appeared first on AsiaNet-Pakistan.

Previous
Next

Leave a Reply