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Cotton and yarn update (January)

Market situation

The demand for yarn remains subdued although the conventional lean period starts from April to September. Demand for recycled and sustainable products remains in demand being the future focus of the clothing value chain. Conventional cotton made products are most likely to have a tougher time in the months ahead.

Cotton & yarn update Jan 2020
Figure: Due to uncertainty in global trade, Bangladeshi spinning mills must be extremely cautious and set appropriate risk minimization strategies based on their information matrix and risk exposure.

The trade conflict negotiation beyond the 1st phase of a deal between the USA and China is unlikely to happen before the coming election in the USA.

Only one-third of the global demand of fiber is met by cotton while Bangladesh being historically cotton-based RMG exporter, particularly the knit sector may find it more profitable to look for the non-cotton value chain.

Geo-political situation and demand for clothing

The ICE index has moved up to 69-70 cents since the news of phase one deals among the USA and China. It has been reported that the deal would be signed on 15th January 2020. In the meantime, the sudden killing of General Qassem Soleimani, the 2nd most powerful person of Iran has created tension and imbalance in the middle-east and Hormuz channel.

Oil price is supposed to rise and would have an implication on cost worldwide. This may eventually reduce international trade and demand for clothing.

USA cotton acreage

USA cotton acreage

The acreage of cotton in the USA for 2020-2021 is projected to be 12 million, which means acreage of USA cotton is going to be more than 12 million for four consecutive years.

In that case, in 2020-2021 USA is expected to export more than 12 million bales of cotton. However, there would be a reduction in the supply of about 2-3 million bales from the USA compared to the current year. As of today, the targeted export of cotton of 15 million bales from the USA during 2019-2020 seems to be on target.

Fixation strategy

ICE index, in my opinion, despite the geopolitical situation would remain firm as the supply-demand gap would tighten if China imports 800 million metric tons or 3.60 million bales or about USD 1.60 billion of USA cotton during 2019-2020 as per the 1st phase trade deal that is scheduled to be signed on 15th January 2020. At the same time, ICE may significantly go down led by negative trade negotiation, geopolitical issues, and the stock market and currency market changes. As a result, cotton prices and yarn prices might experience an inverse scenario.

So, mills must be extremely cautious and set appropriate risk minimization strategies based on their information matrix and risk exposure.

Suggestions for improvement of profitability

For long term sustainability, the clothing value chain would do better if they develop their collective as well as own strategy overcome the next 3-4 years turmoil. It is also important to look for a new design, brand, marketing channels, people engagement, productivity, products and way of doing business.

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