The ICE index has moved up by 2-3 cents since the news of phase one deals with the USA and China. The yarn price is floating at around USD 2.60 to 2.80 per kg. The spinners imported average cotton price has come down to USc 72-82/lb. So, the spinners focusing only on basic 100% cotton carded knit yarn is close to breaking even. But the volume of orders available for yarn has gone down in comparison to last month. Due to the competitiveness of Indian cotton, it is the most popular choice for this season.
US-China phase one deal
Still, no written agreement has been signed. But based on the current information from different sources, it seems that China may import about USD 40 billion of agricultural products from the USA during the 2019/2020 season. Amongst them, cotton import maybe around 0.80 million MT equivalent to USD 1.60 billion which is quite positive for US growers and exporters. Based on this market may have ‘Priced in’ the de-escalation of the US-China trade war as the phase one deal looks to soften the risk related to global growth and ICE may remain firm around USc 70+/-5 during 2019/2020 season.
But the seed of conflict that remains is the technology and restructuring the US-Chinese trade mechanism. These would eventually determine the future of the trade war between China and the US. Particularly, technological restrictions that the US may impose on China would be a major factor to influence commodity prices and the global economy.
ICE at 65-68 is reasonable and fixing at this level for immediate shipments seems reasonable too. If someone is interested to fix at this level for the long term is even not a bad option with a distant put and/or forward sale of yarn. The decision would vary from mill to mill as per the individual mill decision-making matrix and risk appetite.
Suggestions for improvement of profitability
For long term sustainability, individual mills may develop their own strategy. Bangladeshi mills have a lot of scope for improvement in reduction of cost through improving operations; notably raw material, productivity, people and system development. Investment in the management and development of leadership to create a local team is very important.