ICAC - Cotton This Month
Changes in Supply and Demand Estimates (from 17 August 2020)
Limited Cotton Recovery within Pandemic: Production and Stock Levels High, Slow Consumption Growth
Even as the most stringent containment measures begin to be lifted, the opportunity for economic recovery may not relieve current market uncertainty. Countries vary in their ability to flatten the contagion curve and the fiscal space to mitigate the pandemic associated recession. Global production is expected to decrease to 25.1 million tonnes for the 2020/21 season as low prices and food security concerns have led to less planted area in some countries. Global consumption is expected to increase to 24.3 million tonnes, reflecting a 7.2% growth from the previous season. Following near total stoppage of cotton spinning and textile manufacturing in the March-April period of 2020, activity in major consuming countries began to recover in the final months of the 2019/20 season with factories in Vietnam, Bangladesh and India reporting operations near 75% of capacity by July 2020. However, the limited recovery in consumption growth currently projected remains an early estimate that may still be conditional on economic recovery as countries attempt to contain the pandemic. Even if economic recovery materialises, global production is currently projected to outpace consumption for the second continuous season. Prices already under pressure are likely to remain under pressure with limited consumption growth and rising stock levels. At the current global stock-to-use ratio (0.97), the world has enough quantities of cotton lint in storage for nearly one year of mill-use even with no additional production.
Following two seasons of negative growth, global consumption is expected to increase to 24.3 million tonnes in 2020/21 with China continuing to be the largest consumer at 7.8 million tonnes. India is expected to consume 5.1 million tonnes in 2020/21 with mills in the country reporting a steady return to manufacturing following the initial lockdown measures. Consumption in Pakistan is expected to slow for the second continuous season to 2.2 million tonnes as farmers move to food crops and limited opportunity to import due to foreign exchange. Consumption estimates for Vietnam and Bangladesh have been increased following the growth in imports reported in the last months of the 2019/20 season, signalling recovery. Consumption estimates for Vietnam are currently expected at 1.48 million tonnes for 2020/21 with estimates for Bangladesh at 1.4 million tonnes. As global stocks of cotton continue to increase, spinners may be able to anticipate a period of lower prices for the raw material. However, stockpiled cotton may degrade over time and when released will vie against the current crop.
Global production for 2020/21 is expected to be led by India, who continues to lead by planting over 12 million hectares. While productivity remains an issue for smallholder farms in the country, the 2020/21 crop is currently expected at 6.2 million tonnes. China has continued to reduce area under cotton and is expected to produce 5.7 million tonnes, a second continuous year of contraction. The United States production is expected at 3.9 million tonnes, a 14% decrease from the previous season. Amongst a limited demand outlook, exporters may also face competition from Australia particularly to Asian and Southeast Asian markets, as water availability appears to improve and production is expected to increase to over 300,000 tonnes. Area in Mexico has been reduced by 35% for 2020/21 with production lowered to 227,000 tonnes. Despite export difficulties for West African cotton producing countries at the end of the 2019/20 season, planting for the 2020/21 season has been underway with the area targets of 3.4 million hectares and estimated combined production of 1.4 million tonnes.
COVID-19 has presented an additional challenge to the cotton sector that had already been under pressure from long-term decline in use and declining prices since 2018 stemming from global trade tensions. Should projected economic recovery materialise and subsequent demand growth recover, under the current quantities of global reserves, it may still take additional time for prices to recover.
The Secretariat’s current price projection for the year-end 2020/21 average of the A Index is 67 cents per pound this month.
Cotton This Month is published at the beginning of the month with the Cotton Update published midmonth. The Cotton Update is a mid-month report with updated information on supply/demand estimates and prices. The next Cotton Update will be released on 15 September 2020. The next Cotton This Month will be released on 1 October 2020.