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Grasim Industries
Cotton prices continue to rise
The US Department for Agriculture has lowered global cotton output estimates.
The cotton futures have risen by 5.3% in last 2 days on ICE Futures, US. Even, in
India, the cotton inventory is expected dip to 3.5mn bales, vs the normal levels
5mn bales. The above is clearly positive for VSF prices and demand.
Global cotton prices remain bouyant
! The US department of Agriculture lowered its estimates for global cotton production last week
on the back of floodings in Australia. The cotton prices for March delivery in the ICE Futures
US In New York has risen by 5.3% in the last 2 days.
! World cotton stocks at the start of 2010/11 were estimated at 8.9 million tons, the lowest since
1993/94. The global beginning stocks-to-use ratio of 36% in 2010/11 was the lowest since
1990/91, and the ratio is projected to increase slightly to 37% at the start of 2011/12.
! Relatively low global stocks of cotton, limited supply and robust demand caused the surge in
prices in 2010/11. The Cotlook A Index surged from 86 cents per pound on August 2, 2010, to
a record 186 cents per pound on December 22, 2010. The index rallied by 3% yesterday.
! In India, the minimum balance stock of cotton is expected to drop to 3.5mn bales in the
current crop season. This is way below the mandated level of 5mn bales. This was indicated
in the media by a textile ministry official.
Grasim's Viscose staple fibre business is ideally placed.
! Grasim's VSF business we believe will be the biggest gainer from the surge in demand for the
fibre due to constraints to cotton availability. VSF demand and prices critically depends on
prices of its competiting fibres: cotton and polyester staple fibre ( PSF). PSF prices are up
36% yoy, as compared to 20% rise in VSF prices. Hence, we expect textile companies to use
more VSF, which would drive demand for VSF. We recently upgraded our VSF EBITDA by
20-25% for FY12-13.
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