KARACHI, Sept 7: World cotton production is set to record a 13 per cent increase to 23.1 million tons during 2004-05, which would outpace its consumption that is expected to grow at a dismal pace of just about 2 per cent to 21.6 million tons , said the press release issued by the International Cotton Advisory Committee (ICAC).

Analyst Sadaf Yousuf at Taurus Securities commented that going forward bodes well for larger local textile mills in the form of improved margins. Already, domestic cotton prices have receded on the back of lower international prices to Rs2,325 now, from Rs3,000 per maund at this time last year.

"International market, is flooded with the overproduction with most cotton producing countries facing surplus production, especially China and the US - two giants of the cotton world", said the analyst.

According to "The Cotlook A Index", which is a measure of international cotton prices, the prices would average 52 cents per pound, 24 per cent lower than the last year.

Last year, world production had reported 6 per cent growth to 20.4 million tons with consumption outpacing production, which led to the Cot look A index to stand at 68 cents per pound.

Pointing to other positive developments for the local cotton mills, analyst stated that the European Union was reconsidering the recent imposition of 13.1 per cent anti-dumping duty, which if eliminated would prove beneficial for the textile sector as a whole.

In addition, the recent inclusion of 10-member states in the EU zone would result in diversified markets for Pakistani exports. The government intervention which entailed lifting of the unsold bales from the local market had resulted in fresh buying by the textile units that previously had stocks purchased at relatively higher prices (the textile sector had a stock of at least 3 months of around 2.5-3 million bales which they purchased at approximately Rs2800-3000/maund compared to Rs2325/ maund presently). The recent rains in sowing areas were also said to have contributed to stable domestic cotton prices.

Domestic cotton production was expected at above 10.72 million bales during 2004-05, provided the rainfall in September/October remained low. Based on the global scenario, Pakistan had set a target of 10.72 million bales for the current season, an increase of 10 per cent from the last season's production.

However, market sources estimate that the cotton production target is to surpass the target set for the year provided rainfall in September and October remains low. Furthermore, the area under cultivation had increased by approximately 5 per cent which would help in achieving the target set for the year.