Fashion

Cotton prices remain under pressure


Even though the trade dispute between the United States and China has
moved away from escalation and towards reconciliation since the G20 meeting
in June in Osaka, the consequences of this already year-long exchange of
blows between two big players in the international cotton industry are
clearly noticeable in the market. There are widespread insecurities in
completing contracts in the international cotton trade. “Uncertainty is the
new normal,” summed up Bremen Cotton Exchange in its Cotton Telegram of
16th July 2019.

Accordingly, the volatility of cotton prices has continued to increase
and falling prices have been reflected in the declining values of all the
major price indices like Cotlook A, NY Futures and CIF Bremen. At the
beginning of June 2018, the time of the first increase in import duties by
the USA and the increase in tariffs on agricultural products in China,
cotton was trading at 100 US cents per pound (ct/lb), based on the A Index.
The price fell to 94 ct/lb in August/September, as trading tensions
increased due to higher import duties and counter duties. A further decline
followed in the period between October 2018 and April 2019, with
fluctuation ranging from 80 ct/lb in February to 88 ct/lb in April. As
negotiations to settle the dispute suffered a setback at the beginning of
May, prices reached only 76 ct/lb. On July 24, quotations reached 78.50
ct/lb.

“Despite the trade dispute, which appears to be the ‘new normal’, global
cotton consumption in the 2019/20 season is expected to increase by 1
percent to 26.9 million tonnes, according to calculations by the
International Cotton Advisory Committee (ICAC). China is expected to fall
by 200,000 tonnes to 8.25 million tonnes,” said Bremen Cotton Exchange.

However, China remains by far the largest consumer of cotton, with
cotton imports likely to increase to 2.1 million tonnes due to the
normalisation of cotton reserves in the country. Alongside India, the
country is also the world’s largest cotton producer. The USA is the largest
cotton exporter and fourth largest cotton producer, with currently growing
stocks.

Overall, cotton production is expected to reach 27.6 million tonnes in
the 2019/20 season, an increase of 7 percent. At this level of supply and
demand, global stocks are expected to rise to 18.6 million tonnes. In the
previous season 2018/19, they reached 17.9 million tonnes, the lowest level
since 2012/13 according to Bremen Cotton Exchange.

Cotton prices remain under pressure

“This alone should keep pressure on cotton prices in the medium term.
Added to this are the uncertainties caused by trade disputes, as well as a
slowdown in economic growth in Europe and possibly also in the USA, where
there is a big demand for cotton textiles and clothing,” concludes Bremen
Cotton Exchange.

Photo: Kimberly Vardeman, Creative Commons; graphs: cotton price
indices July 2018 -June 2019 / Bremen Cotton Exchange



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