Cotton prices to rise due to demand trumping supply

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After stagnating during the Covid-19 pandemic, the textile industry has begun to strongly recover and the demand for cotton has risen. This is according to IndexBox’s new report, World – Cotton Lint – Market Analysis, Forecast, Size, Trends and Insights.

It is expected that cotton consumption in 2021 will grow faster than the supply. This will lead to a reduction in global cotton stocks and higher prices. The issues of sustainability and ethical background are becoming increasingly important in the transformation of cotton supply chains.

Key trends and insights

With increased demand from the textile industry, global cotton stocks fell to a three-year low. Although cotton production is projected to increase by 5% in 2021, the demand will outpace supply which will raise prices even further. In the medium term, the main driver of growth in the cotton market will be the demand for textiles from the growing global population.

According to a recent report by the World Bank, the average price for raw cotton in the first quarter (Q1) of 2021 was US$1,64/kg, which is 3% higher than the average price in 2020. In the fourth quarter (Q4) of 2021, prices are projected to rise to US$1,72/kg.

Despite the positive dynamics, cotton production in 2021 will not return to the record levels of 2019. High cotton yields are projected in the United States (US) (+523 000 tonnes), Brazil (+436 000 tonnes), Australia (+239 000 tonnes) and Pakistan (+174 000 tonnes) due to favourable weather conditions and the increasing harvested area. China, on the other hand, will lower cotton production and give way to India as the main producer with a 24% share of the world total.

The highest growth rates for the cotton industry and demand for cotton are expected in Pakistan, India, Bangladesh, Vietnam, Turkey and China. The first four countries mentioned are becoming centre points for the global textile industry due to cheap labour. In China and Turkey, rising incomes of these populations will make production less competitive. It is assumed that domestic production will not be able to fully meet the demand of the cotton industry in China, and the country will have to increase its imports.

Cotton and sustainability

Strong competition from other natural and functionally similar materials such as hemp or flax, as well as synthetic textile materials, will hold back market growth. Hemp is more convenient to grow than cotton as it consumes five times less water, while cotton production is considered environmentally harmful because it uses large amounts of insecticides. In some countries, forced labour is supposed to be used on cotton plantations. The environmental issues and labour rights violations lead to increased consumer attention to the ethical side of the cotton market. This forces major apparel companies to shift supply chains toward cotton suppliers with a proven and traceable environmental and ethical background.

The issue of creating a cost-effective recycling technology for cotton to be sustainable is now becoming increasingly important. The production of cotton fibres involves a huge amount of water consumption, and cotton recycling will significantly reduce these volumes and maintain the stability of natural water resources.

Cotton exports by country

In 2020, international shipments of cotton lint decreased by -9,2% to 8,1 million tonnes for the first time since 2016, thus ending a three-year rising trend. In value terms, cotton lint exports decreased sharply to US$13,1 billion in 2020.

In 2020, the US (3,8 million tonnes) was the key exporter of cotton lint, comprising 47% of total exports. It was distantly followed by India (965 000 tonnes) and Brazil (865 000 tonnes), together achieving a 23% share of total exports. The following exporters – Benin (292 000 tonnes), Greece (289 000 tonnes), Côte d’Ivoire (230 000 tonnes), Burkina Faso (217 000 tonnes), Nigeria (212 000 tonnes), Australia (170 000 tonnes) and Uzbekistan (137 000 tonnes) – together made up 19% of total exports.

In value terms, the US (US$6 billion) remains the largest cotton lint supplier worldwide, comprising 46% of global exports. The second position in the ranking was occupied by India (US$1,4 billion), with an 11% share of global exports. It was followed by Brazil with an 11% share.

In 2020, the average cotton lint export price amounted to US$1,616/tonne, shrinking by -6,9% against the previous year. Average prices varied somewhat among the major exporting countries.

In 2020, major exporting countries Nigeria and Uzbekistan recorded US$2,222/tonne and US$1,823/tonne, respectively, while India (US$1,501/tonne) and Greece (US$1,558/tonne) were among the lowest.

Cotton imports by country

In 2020, after three years of growth, there was a significant decline in supplies from abroad of cotton lint, when their volume decreased by -16,8% to 7,1 million tonnes. In value terms, cotton lint imports contracted sharply to US$12,2 billion in 2020.

In 2020, China (1,9 million tonnes), distantly followed by Vietnam (945 000 tonnes), Pakistan (819 000 tonnes), Bangladesh (726 000 tonnes), Turkey (655 000 tonnes) and Indonesia (627 000 tonnes), represented the largest importers of cotton lint, together generating 79% of total imports. Together, Malaysia (247 000 tonnes), India (174 000 tonnes) and South Korea (115 000 tonnes) made up 7,5% of total imports.

In value terms, China (US$3,6 billion) constitutes the largest market for imported cotton lint worldwide, comprising 29% of global imports. The second position in the ranking was occupied by Vietnam (US$1,4 billion), with a 12% share in global imports. It was followed by Pakistan, with an 11% share.

The average cotton lint import price stood at US$1,706/tonne in 2020, shrinking by -5,3% against the previous year. Average prices varied somewhat among the major importing countries. In 2020, major importing countries India and China recorded prices of US$1,979/tonne and US$1,929/tonne, respectively, while Vietnam (US$1,486/tonne) and Turkey (US$1,519/tonne) were among the lowest. – IndexBox Platform