Will threats such as a looming double dip recession, strengthening dollar value, downpour of Pakistan, and financial crisis of countries like Japan and China dampen the global cotton market?

Cotton prices and its market fluctuations always receive a lot of attention. The mounting concerns of economic uncertainty in EU have an overall influence across all countries, infecting their businesses. The looming double diprecession is likely to influence cotton fibre prices of future purchases. It is causing significant impact on the cotton supply chain, altering the balance between supply and demand due to the dramatically changing economic conditions.Approaching Christmas, and New Year holidays are also likely to bring the cotton market to a standstill.

Cotton prices are witnessing a dramatic decline in the global market, as enormous volumes of cotton have put pressure on the domestic cotton prices in countries like Pakistan, India, and China. Lingering economic turmoil in the European countries and strengthening of the US dollar against its counterparts have also influenced the price of cotton. Appreciating dollar value has affected the interest of overseas buyers and has deteriorated the attraction of US crops in the global market.

Global consumption of cotton is expected to decline due to dull economic environment. Diminishing consumption of cotton yarn is also expected to impact the use of cotton. The current situation has affected both cotton fibre prices, and cotton supply chains. Cotton price is moving sideways, and is predicted by analysts to retain the same trend in the coming months as well.

Will cotton continue to be the 'white gold'?

Financial constraints are restricting the cotton activities of Bangladesh. Pakistan's cotton is 30-40% below the average quality due to heavy rains, and a resulting flood. Deadly flash of rain and floods are affecting the Sindh province; a main cotton region of Pakistan indicating the country's losses for the current year to be serious than the previous year.

India is making a record high crop of 35.5 million which would be a surplus over their requirements. Consumption, on the other hand is expected to be lower due to weakening demand from the US, and EU, and less demand from the domestic industry would be behind this. Surplus bales would be exported to the neighboring countries such as China, Pakistan, and Bangladesh. Shankar-6, the benchmark cotton variety of India has a reputed market in these countries. China is expected to curtail its cotton imports after meeting the quota for the calendar year 2011. Looming economic crisis in the Euro Zone, currency issues in China, & Japan, and budgetary financial issues in US, are posing a threat to the global economic activities.

Adopting a leaner and responsive supply chain is likely to lower the risks of recession. This would be more appropriate when consumer demand is weak. Despite all price challenges, cotton remains a preferred fibre of the consumers.

References:

1)     Economictimes.indiatimes.com

2)     Tradingeconomics.com