950808

China not seen as

big 95/96 cotton

price influence

HONG KONG: International cotton prices are unlikely to be influenced by China's needs in the next season because of its huge inventories and an expected fall in consumption, traders and industry analysts said.

"China's buying is what has kept the prices up for the past year, so if China isn't buying and unless there is a major disaster, the prices will come off," a Hong Kong analyst said.

Analysts differ on how cotton prices will move, given that the United States is heading for a bumper harvest of 21.5 million bales and crops in India and Pakistan look healthy.

A bale weighs 480 lb (218 kg).

Cotton prices hit historic highs above $1 per pound in New York trading in February and have since softened, closing on Monday at 72.44 cents for December delivery.

"I don't think it (the price) will hold," a senior Hong Kong-based industry executive said.

"Subject to weather in Pakistan and India, if the situation remains normal Pakistan will have two million bales to export. I see the price coming down to 65 cents per pound."

The Asia representative of a major U.S. trading house said prices would not drop below 70 cents.

"The U.S. crop is already two-thirds bought but at the moment it's all on weather reports because we are still two or three months away from harvest," he said.

China imported 500,000 tonnes of raw cotton in the first half of 1995, up 382 percent on the same period in 1994, customs figures show.

Trade predictions early this year were for total 1995 imports of 2.2 million 480-pound bales or around 480,000 tonnes.

Now trading and industry sources say imports have been excessive and will provide China with a stockpile to draw on in the coming year.

"Imports for fear of another disastrous shortage like that in 1993 have gone into stockpile, which makes it less necessary to import in the coming year," the Hong Kong analyst said.

Cotton output has fallen since the 1984 record of 6.25 million tonnes. Output in 1993 was 3.76 million tonnes, after 1992's 4.5 million. It grew 14 percent in 1994 to 4.34 million tonnes, official figures show.

The Chinese press reported last week that 1995 cotton output is almost certain to fall short of the official target of 4.5 million tonnes.

A manager with an international chemical company who recently returned from China said insect infestation on the north China plain could be as serious as 1994.

"Last year there were four generations of boll worm, and each successive generation is bigger and more destructive than the last," the manager said of the insect that has been responsible for devastating cotton crops in China and elsewhere.

High temperatures and summer rains have cut numbers of second-generation worms, he said, but the crucial period is just beginning. Spraying has not been heavy, he said.

Industry sources estimate that production would be between 3.8 million and 4.1 million tonnes.

There is also a prevailing view that consumption will drop from the current 21 million bales, or 4.52 million tonnes, to 20 or 20.5 million bales, or 4.3 million to 4.46 million tonnes.

Mill closures, reduction of spindles and increased synthetic fibre output will continue to rationalise the industry and reduce China's need for imported cotton, they say.-Reuter