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Tuesday, September 25th, 2018

AKD Quotidian about — Cotton Update: May’13

Be First!
by May 15, 2013 Brokerage

Karachi, May 15, 2013 (PPI-OT): On Friday May 1O’13 USDA issued its first cotton report for the marketing year (MV: year starting August 1st) 2013/14.

According to AKD Securities in this regard, USDA has forecasted global cotton production down by 3.l3mn bales VoY to 117.Bmn bales for MY14F. Global ending cotton inventory is set to rise yet again to a record 92.7mn bales, however this will not adversely impact cotton prices as the excess is likely to be absorbed by China and kept off the open market. With the Chinese cotton support policy continuing,

Chinese ending cotton inventory is expected to rise to 58.2mn bales, even as inventories in the rest of the world are likely to decline to 34.6mn bales from 36.5mn bales a year earlier. AKD Securities reiterates liking for NML which is likely to perform well given the significant share price increase of portfolio companies. With a TP of PkRI 08/share, NML provides an upside of 20.04% from current levels. In addition, AKD Securities has an accumulate stance on NCL which offer 12.16% upside from current levels to AKD Securities TP of PkR5G/share.

Key Takeaways: On Friday May 1013 USDA issued its first cotton report for the marketing year (MV: year starting August 1st) 2013/14. In this regard, USDA has forecasted global cotton production down by 3.l3mn bales YoY to 117.8mn bales for MY14F. Earlier expectations of a fall in cotton acreage did not materialize to the extent expected, where the forecasted decrease in acreage is only 0.8% to 34.O4mn hectares as compared to 3431 mn hectares for MY13.

Global ending cotton inventory is set to rise yet again to a record 92.7mn bales, however this will not adversely impact cotton prices as the excess is likely to be absorbed by China and kept off the open market. With the Chinese caftan support policy continuing, Chinese ending cotton inventory is expected to rise to 58.2mn bales, even as inventories in the rest of the world are likely to decline to 34.6mn bales from 365mn bales a year earlier. Global trade is likely to go down, driven by lower expected demand from China this year, however higher consumption and hence demand from other countries is expected to offset the reduction in trade due to China.

World Cotton Statistics


 Average Beginning Ending
                  (mn Hectares)  Inventory  Production  Imports  Use  Exports  Inventory

 MYI4F Global         34.0        84.8       117.8       39.5   110.4   39.5    92.7
 of which China        5.1        92.7        34.0       12.0    36.0    0.1    58.2
 of which Pakistan     3.0        92.7         9.5        3.1    12.0    0.3     3.2
 MYI3 Global          34.3         3.2       120.9       45.2   108.2   45.0    84.8
 of which China        5.3        30.2        35.0       18.3    36.0    0.1    48.3
 of which Pakistan     3.0         3.1         9.3        2.8    11.5    0.5     3.0

All figures except acerage in mn bales (1 bale 490 lbs} Source:USDA

Investment Perspective: With AKD Securities expectations of cotton prices continuing at current levels AKD Securities are likely to see textile companies that procured cotton at cheaper rates n 2QFY1 3 continue to do better as they benefit from increase in raw material prices in the market.

In this regard, AKD Securities reiterates liking for NML which is likely to perform well given the significant share price increase of portfolio companies. With a TP of PkR1O8/share, NML provides an upside of 20.04% from ii current levels. In addition AKD Securities has an Accumulate stance on NCL which offers 12.16% upside from current levels to AKD Securities TP of PkR56fshare.

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