Cotton markets have witnessed drastic fluctuations during2008, with prices on both extremes; touching historic heights and later ontumble down by almost 40% by the end of the year. Weak US dollar affected thecotton prices to a considerable extent. Economic crisis that is sendingshivers; worldwide has added woes to the cotton prices. Hindrances in availingcredit and issues of cash liquidity have caused difficulty in operations. Decliningtextile productions in major countries like India, China, and Pakistan is building pressure in yarn prices. A drastic decline in the raw cottonconsumption due to a decline in the sales figures of major consumers from thewestern centre is also raising concerns.


Decline in the stock and housing markets have made the consumersto save a greater share of their discretionary income to keep up with the lossdue to fall in their assets value. Losses continue to increase in the financialmarkets causing job losses thereby ultimately affecting the level of consumerconfidence. All these factors add a persistent weight on the cotton prices. Feebledemand resulted in the further loosening of the global stocks highlighting thelack of price support from fundamentals. The USDA cotton outlook anticipatesthat a fundamental tightening may occur in 2009/10.


More land area is shifted to alternative crops as the demandfor cotton continues to nosedive. The two globally largest textile producingnations, India and China are witnessing a sharp decline in the demand for theiroutput. Hence these two biggest cotton producing countries in the world arelikely to restrict their land area that they devote to cotton.


Modest gains were recorded for cotton prices during January,2009 with prices touching the highest in the previous three months. But thistrend only had a short life due to weak fundamentals and weak demand in theinternational market especially in China.


Declining cotton consumption in China:


China is currently the largest consumer of cotton. Cotton sector in China is adequately protected by its Government through support prices, export subsidies,import tariffs, and public stockholdings. The Governments reference price ofcotton is set typically above the global prices. Presently, the ongoing globalturmoil, and a severe weakness of the countrys textile sector has hacked thecountrys demand, and consumption of cotton. Decline in the cotton consumptionof China is estimated to be around 24%.


Global cotton production is expected to decline byapproximately 8%, and consumption is expected to fall by 6% during the currentyear. Chinas cotton consumption and production is also expected to decline toa sizeable extent. India and China being the major contributors to the worldcotton trade, the current years cotton consumption and imports are furtherexpected to decline. Major textile mills and apparel exporters in China are struggling with demands nose diving, and a resulting pressure from the unpaidbank loans. Many of them have downsized their operations by lay-offs, and stillsome of them have pulled down their shutters.


Despite the bleak demand, cotton has its own circle ofbuyers. Economist state that with a positive expectation of the economicrecovery during the second half of 2009, global consumption is optimisticallyanticipated to increase by 2.1%. During the said period, accumulated stocksfrom countries like India and China would be released. But, still there remainsan uncertainty from the demand side, as to how quick and strong the economicrecovery would be.


References:


  1. &sec=article&uinfo=<%=server.URLEncode(1795)%>" target="_blank">http://www.cottoninc.com
  2. &sec=article&uinfo=<%=server.URLEncode(1795)%>" target="_blank">http://www.commodityonline.com