Better demand outlook: world cotton price rise to benefit local textile players

International cotton prices have gained 13 percent in last three trading days to reach 2-year high mainly due to lower expected inventory levels predicted by the USDA in its recent report. In the report, the agency has lowered its forecast for global cotton stockpiles in 2017 to 91.3 million bales, down from 94.7 million bales projected in June. The latest inventory number would be a five-year low.
The decline in global cotton inventories is linked with rising cotton consumption in China and lower cotton cultivation in India and Pakistan. Mohammad Afaq Nasir, analysts at Insight Securities, said presently, ICE Cotton 2 price is trading at US cents 74.5 per lb. (up US cents 8.8 in 3 days) which was last seen in June 2014.
Though, theoretically, increasing cotton prices push up cost of production for textile producers but Pakistan local textile players have actually witnessed lower demand and falling textile prices in last two years when prices crashed from peak of US cents 94/lb in May 2014 owing to less demand from the export markets and rising competition from regional players.
"We feel that the recent change in demand outlook, recovery in the international cotton prices and reciprocal rise in local prices would benefit local textile producers in shape of increase in margins on existing cotton and textile inventory and revival in textile operations after better global demand scenario," he added. All textile players in Pakistan may benefit from this situation where Value Added segment players would yield more from rising global demand, he mentioned.