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China Supply, Demand Presses Cotton Costs

With worldwide demand for cotton forecast to rise modestly next year, while production remains virtually flat, cotton prices are expected to rise in the neighborhood of 6.9% during the 2007/08 cotton growing year, to about $0.62 a pound from an average of $0.58 this year.

In a monthly update of its annual cotton supply, demand and pricing forecast, the International Cotton Advisory Council (ICAC) said world cotton production for the upcoming cotton year is forecast at 25.2 million tons, virtually unchanged from the 25.3 million tons on track for this year.

Production in China is forecast to decline slightly to 6.5 million tons, still the second largest harvest to date. U.S. cotton production, however, is forecast to slide at a double-digit pace next year, falling by 10% to an estimated 4.3 million tons. Picking up some of the slack, production in India is expected to rise slightly, to a record 4.7 million tons.

But demand continues to grow, said the cotton growers' cartel, putting upward pressure on prices. Worldwide consumption of cotton is projected to increase by 2% during the upcoming cotton year, to 26.7 million tons, "still driven by Chinese mill use," said the cotton growers.

"International cotton trade is expected to rebound from 8.5 million tons in 2006/07 to 9.2 million tons in 2007/08, driven by an expected rebound in Chinese imports."

With demand rising as supplies tighten, prices are set to climb again, and at an even faster pace, said the worldwide consortium of cotton growers. The 6.9% price hike forecast is about twice the jump of 3.3% this year, to $0.58 from $0.56 last year.

WORLD COTTON SUPPLY AND PRICING FORECAST
(in millions of tons, except for cotton prices)

2005/06 (ACTUAL) 2006/07 (PROJ.) 2007/08 (PROJ.)
Source: International Cotton Advisory Council (ICAC)
Production 24.7 25.3 25.2
Consumption 25.1 26.2 26.7
Cotlook A Price Index $0.56 $0.58 $0.62


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