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Cotton and yarn update

It’s time to work for a common goal to attain the optimum solution

Except for few exceptions, most spinning mills in Bangladesh are closed since 25th March to safeguard from the global healthcare pandemic. Definitely, this would hurt them financially but would save many lives which is a responsible move. On top of that many garments orders have been canceled this month and therefore there is very little delivery pressure from the yarn buyers. Luckily most of the spinning mills are having nominal yarn stock and cotton stock. So, it would not be difficult to start production once the garments orders resume back.

Figure: The COVID-19 pandemic created a massive disruption in the cotton and yarn sector.

But spinning mills within a couple of months would have to make their choices on meeting the bank commitments, import commitments, collection of receivables, wages and salaries and other issues, which during this time they can assess and make a strategic plan to address the issues in future with minimum difficulty. Some of it would be individual, and some collective that they can deal through BTMA. Planning all those things would make things easy and it’s time to work for a common goal and our entrepreneurs would do the best for the optimum solution.

Zhengzhou commodity exchange dropped below 10,000 Yuan/MT

The most actively traded May cotton contract dipped at 9,935 on 24th March due to the fear of potential cancellation of orders as the spread of novel coronavirus in major buying countries in Europe and USA has compelled authorities to seal off the borders and shut down the apparel stores.


Blumberg world GDP growth in 2020

According to Chief Economist Tom Orlik, “A lot needs to go right” for global growth to rebound after the Corona Virus leads to a severe first-half contraction. For now, they are predicting a 2% decline for the whole year.

Bloomberg-World-GDP growth-2020

Stimulus package and ICE Index

The entire World War II cost the entire world USD 2.50 trillion. On the contrary, the US Congress is debating on a mammoth stimulus package of USD 2-6 trillion to fight coronavirus and save the US economy. Europe, Australia, Japan and other countries are also trying to accommodate stimulus package to bridge the lockdown situation. Bangladesh has also declared a stimulus package of BDT 50 Billion and hope over the time the world economy would resume normal operation shortly and needs full cooperation at all levels.

Since ICE Index came to 60s at the closure of Huston Port a few weeks back. Subsequently increased outbreak in Europe, the USA and other countries, forced lockdown situation resulted in the ICE Index going down to 50s. On the contrary, the drop in oil index would make manmade fiber competitive than cotton and reduce demand for cotton.


Crude-futures-last-trade-2020In 2008 financial crisis ICE came down to 36.70 and considering the already approved USD 2 trillion, out of which USD 50 Billion specific to US Department of Agriculture; USD 25 Billion to Agriculture and USD 25 Billion to Food Programs, it looks ICE may find some sort of protection.

But unless the world economy rebounds quickly enough by putting a tap on the outbreak of coronavirus globally and results in major clothing buying countries in Europe, USA and other regions open the borders, free movement of goods, services, and the apparel stores for normal operation, ICE could even experience free fall as demand for cotton could come to a pause.

Fixation strategy

ICE would remain volatile with the changes of pandemic situation and world economic recovery, world demand for clothing-cotton, cotton plantation intentions of different countries, and the changes of weather in the coming months. But the key to the trend of ICE lies with the import demand of cotton from China and the recovery of global clothing demand and normal economic activity.

So, mills may re-evaluate raw cotton requirements of 2019/2020 crop once again and remain cautious. For the 2020/2021 crop, we may look to fix the price at the current level of some percentage of total quantity if available at a suitable level and also remain long on volatility through options (Put and Call) depending on the risk appetite.  We are passing through the greatest economic challenges and it requires very special attention. May Allah forgive us and save us all from the pandemic at the earliest. Suvo Bangla Noboborsha.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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