In an analysis report published by The Business Recorder, it was noted that World cotton prices have stabilised over recent months, currently trading at around $2.25 per kg after two years of extreme volatility triggered by the pandemic. However, the price is a 25% premium over pre-Covid averages. Locally, cotton export earnings have not been affected so far, despite the price changes.Â
The impact of the new normal in world cotton prices has had a stark impact on global demand, with consumption expected to hit a nine-year low, according to the USDA. The reduction in demand is reflected in the global stock build-up, with the ratio of ending stock to use for the current marketing year predicted to be the highest since 2014.
However, a key factor impacting the global cotton supply chain is China, the world’s largest cotton producer, which accounts for one-quarter of global output and one-third of global consumption. The US ban on textile products made from cotton originating from the Xinjiang region of China has cut off a large portion of the raw material from the global supply chain. Until recently, the region was responsible for almost 90% of Chinese cotton production, feeding into the global value chain of textile and garment manufacturing that produced goods with the US as their ultimate destination.Â
This has led to a reduction in the tradable surplus of cotton in the global market, keeping prices at an elevated level. Meanwhile, high global energy prices have ensured that global PET prices remain prohibitively high, elevating the prices of cotton substitutes such as polyester or synthetic fibres.
The world cotton market has stabilized after two years of extreme volatility, but global demand is expected to hit a nine-year low due to the new normal in world cotton prices. The impact of the US ban on textile products made from cotton originating from the Xinjiang region of China and high global energy prices have further elevated the prices of cotton substitutes. It remains uncertain when world cotton prices will return to pre-Covid territory, and any such hopes should be approached with caution.
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