Trade disputes likely to impact global cotton prices

Global cotton prices might be influenced by more than traditional market fundamentals in the 2020/21 season, as trade disputes among major players continue and US restrictions on cotton from Xinjiang could put stress on global supply chains and their lack of transparency.

Traditional market ‘fundamentals’ are certain factors that have proven themselves over time to be fairly consistent predictors of marketplace behaviour, the International Cotton Advisory Committee (ICAC) says in its latest update.

However, it adds these are by no means a guarantee of near-term price fluctuations because other factors can push the market away from what the fundamentals might appear to indicate.

“Today the industry finds itself in that very situation. If, as expected, global cotton production in 2020/21 (estimated at 24.6m tonnes) is unable to keep pace with global consumption (estimated at 25m tonnes) and worldwide trade remains healthy (estimated at 9.8m tonnes), that combination of factors normally would be expected to drive an increase in price.

“However, ongoing trade tensions between the USA and China likely will continue to have an impact on prices, and the recently announced US restriction on cotton from Xinjiang — which produces about 90% of China’s cotton lint each year — complicates the outlook as well. If fully enforced, the restriction would place a very difficult burden of proof on companies throughout the long and complex cotton supply chain.”

In terms of prices, the Secretariat’s current projection for the year-end 2019/20 average of the A Index has been revised to 80 cents per pound this month.

The price projection for the year-end 2020/21 average of the A Index is 89.7 cents per pound this month.