Cotton prices have risen for the second consecutive week in New York, amid optimism about the end of trade negotiations between Beijing and Washington. Although an expected return of Chinese buyers to the US market is supporting prices, long-term fundamentals are less exciting, with cotton use slowing down in many countries, including Bangladesh, Vietnam, China, etc. Cotton stocks could continue rising in the coming season, according to the US Department of Agriculture.
Cotton futures have clearly risen in the past week, as optimism was prevailing about a looming trade agreement between the United States and China.
The nearby contract has gained 1.24%, increasing for the second consecutive week.
According to rumors, China could be committed to buy large quantities of US agricultural products over a 7-year period, including cotton.
The final agreement could be reached in the coming weeks, and probably before the end of the month.
Global slowdown
In the meantime, the global business activities are being slowed down by current uncertainties over the end of negotiations.
Demand is kept at minimum levels by traders and final buyers with everyone refusing to accumulate inventories.
The official announcement of the final deal could trigger a short-term rally in New York, but long-term prospects are increasingly bearish.
Just released monthly data from the ICAC have reduced the seasonal growth of cotton use in several textile producing countries, including Bangladesh and China, whereas consumption is still expected to record a double-digit jump in Turkey, Indonesia and Uzbekistan.
In Vietnam, cotton use would only be up 3%, from a double-digit increase in the preceding seven seasons. Consumption would not rise by more than 1% in India.
Rising stocks, falling prices
Confirming the global slowdown, Cotton Outlook has also lowered its forecast for the current season, with cotton use being reduced by 271,000 metric tons from previous month.
In the following season 2019-20, ending stocks would even rise, according to the first forecast from the US Department of Agriculture (USDA).
World production would surge 6.9%, mostly due to higher yields, therefore reaching its second-highest level ever, as a result of a sharply increasing output in the United States..
Global use would only grow by 1.5% in 2019-20, however reaching a new record level.
Ending stocks would eventually rise 1.3%, although falling 13.6% in China.
With cotton prices therefore expected to decline, polyester use would be less favored.
China’s return to the market
China’s return to the international market will be another key factor in determining cotton prices.
Sales from state reserves should dramatically decline before even being stopped, due to a lack of official stocks.
Uncertainties will come from the level of Chinese buying, and if it will be done by cotton officials for replenishing state-owned inventories or directly by Chinese importers.
Will also China fully turn to the US crop, as rival Brazil is rapidly emerging as a major cotton exporter?
Source: Emergingtextiles
