Cotton prices have continued sharply falling in the last week, over a new deterioration of the China-US relationship. The rebound of global cotton production expected for the coming season is also pressuring prices on international but also on the domestic markets. Even in China, domestic cotton prices are sharply falling.
Cotton prices have continued last week falling in New York, with the nearby contract sliding 2.5 cents per lb or 3.6%.
The same July contract has now lost 15.7% from its level four weeks ago and is down more than 20% from a year earlier.
Such a decline is due to renewed trade tensions between the United States and China but also to prospects of a far larger cotton production in the coming season.
The market had earlier surged over anticipations of a comprehensive trade agreement between Washington and Beijing, including China’s commitment to buy large quantities of US cotton.
Conclusion of such a deal now looks very uncertain, especially after US decision at the end of last week to ban Chinese tech firm Huawei.
With its stocks falling however, China could need buying large quantities of foreign cotton.
Additional import quotas have already been allocated to spinners for letting them import their raw materials far below the basic 40% tariffs (raised to 65% for US cotton).
Chinese importers could turn to other producers like Brazil, Australia or even to India where the cotton production is expected to sharply rebound in the next season.
Global cotton stocks are seen further falling in 2019-20 by the US Department of Agriculture (USDA), but they would rise 4.9% outside China.
Importing countries like Bangladesh or Vietnam could therefore benefit from a fall of their material costs, as India and Pakistan would significantly reduce their demand on the international market.
The fall of New York has already triggered a decline of cotton prices on all domestic markets.
Even in China where the cotton market is extremely stable by historical standard, domestic prices are depressed by the fall of international prices.
Offcial sales from state reserves have recently resumed, and price offers take into account the international trends.
In India and Pakistan, prices are also dropping with spinners therefore getting larger margins, as far as they do not lower their price offers.
Source: Emergingtextiles
