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Apex bank cautions of runaway cotton prices
Dec '10
Cotton demand is experiencing pressure from soft developed economies which indicate that investors should not get swayed with the price rallies of the fibre. This was revealed by the National Australia Bank while the cotton prices touched a record high level. The bank accepted that outlook for prices of cotton in 2010-11 were strong which was particularly because of the Chinese cotton consumption lagging behind local production for the last 12 consecutive years.

Market forces are likely to provide a firm ground for prices in China, which is the leading producer, consumer as well as importer of cotton, as revealed by a top Australian bank official. For the third consecutive trading day, the New York exchange limits permitted the cotton prices to increase up to the maximum by adding 5.0 cents or 3.2 percent to touch a record high level of 159.12 cents per pound.

Chinese cotton factories and textile producers are required to pass some of the enhanced cost of cotton to the end users in order to stay operational. Again, high unemployment rates have reduced the retail spending on clothing in large developed countries during the last six months. Australia, which is having a trade boom, has been experiencing a declining trend in the retail revenue in the clothing and footwear sector for the last four months.

Currently, the market is ignoring the demand and is being driven by apprehensions of fall in cotton supply. Apprehensions about cotton supply are mostly concentrated in China where the production is about to decline by about 6 percent in 2010-11, in Pakistan where floods have cut down the cotton production by 8 percent and also in US where storms in Texas have destroyed the expectations of better output.

On the other hand, Brazil is anticipating a hike of 45 percent in cotton supply thereby raising the country's harvested area to 1.22 million hectares, which was caused by the high prices which had encouraged more sowings. National Australia Bank projected the cotton output in Australia which is the third leading exporter of cotton to touch 3.8 million bales in 2010-11.

Fibre2fashion News Desk - India

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