ICAC October Monthly Report: Cotton Prices Will Remain Low When Demand Outlook Is Low

The International Cotton Advisory Committee (ICAC) released the October Global Forecast of global production and demand. The growth of global cotton consumption in 2019/20 is slow and the demand outlook remains low.

In 2019/20, cotton production in the world is estimated to be 26 million 800 thousand tons and consumption is 26 million 500 thousand tons, up 1% over the same period last year. Global economic growth slowed down due to the escalation of trade disputes, and global cotton demand growth slowed to 2% in 2018/19. East Asian countries are still the leader in global cotton consumption growth, but consumption growth in 2019/20 is very low. China's consumption is expected to be 8 million 250 thousand tons, unchanged from the same period last year. India consumption is expected to grow at 5 million 500 thousand tons, up 2% over the same period last year. The growth of other major consumer countries has also slowed down considerably. Bangladesh consumption is expected to grow by 1%, to 1 million 600 thousand tons, far below 5% in 2018/19, because the decline in yarn prices has led to a decrease in demand for cotton. Vietnam's consumption grew rapidly in -2017/18 in 2011/12, but the growth rate in 2019/20 decreased to 2%, to 1 million 600 thousand tons. Because the supply of gauze industry chain is adequate and the procurement behavior is limited, the upstream circulation of cotton is difficult to increase.

Considering that global economic growth has slowed down, ICAC has reduced global cotton consumption from 26 million 700 thousand tons to 26 million 500 thousand tons. The long-term situation depends on whether trade issues are escalated, whether trade protectionism is subsided and whether market confidence in investment is restored. Although low interest rates create favorable conditions for investment, uncertainties in the global trading environment make cotton consumption growth difficult.

Due to the abundant supply of cotton and low export demand, the A index has dropped to its lowest level since 2016. According to current projections of global supply and demand projections, the 2019/10 end of the year inventory (excluding China) is expected to grow by 7.7% over the same period. If the forecast for consumption in the next few months is further reduced, the international cotton price will bear more pressure. At present, the cotton industry chain has a high inventory, even if cotton prices fall, cotton stocks are also increasing, and cotton trade is still under impact.

Affected by global output growth and slowing consumption growth, international cotton prices are expected to remain low in 2019/20. ICAC estimates the average A value of the Klock is 76.7 cents per pound.