Cotton prices are on a roll again globally, defying expectations and leaving everyone scratching their heads. After a seemingly stable post-pandemic period, prices surged in February 2024, reaching $1 per pound – a level last seen a year ago. This is happening despite stagnant global consumption and high stockpiles.

Prices defy expectations

Production and consumption projections by country paint a mixed picture. "Major producers like China and India are expected to maintain or slightly higher output," another analyst noted, "However, consumption is forecast to remain subdued globally, hovering near a four-year low. This should ideally lead to lower prices, but that's not the case."

Table: Production and consumption projections 2023-24 

As shown in the table, global production is expected to be slightly lower than the previous year, with major declines in the US and Australia offset by increases in Pakistan and Brazil. Consumption is projected to inch up slightly, driven by growth in Pakistan, Vietnam, and Bangladesh. However, major consumers like China and India are expected to see a decline.

China: Stockpiles high, imports soar

In fact, China, the world's largest cotton producer, holds record stockpiles but faces a new reality due to the Xinjiang ban. "Despite flat domestic consumption," an analyst explained, "China's import estimates have skyrocketed by 107 per cent year-on-year to compensate for the ban. This rise offsets the decline in import demand from other major players like Bangladesh, Pakistan, and India."

In the US meanwhile, despite lower planted area, cotton production is expected to rise in 2023-24. However, recent news suggests increased supply expectations and lower mill demand might put downward pressure on prices.

Price surge, speculation or new normal?

The price increase has analysts baffled. "Cotton consumption is at a four-year low, and the stock-to-use ratio is at its pandemic peak," one analyst said. The USDA forecasts the Cotton A Index to average 97 cents per pound in 2024, a significant drop from the highs of 2022 but still above pre-pandemic levels.

The current rise could be partly speculative, due to China's uncertain buying despite record stockpiles. China, the world's largest cotton importer, has significantly increased import forecasts for the current year. This could be due to a shift away from Xinjiang cotton due to the forced labor ban, analysts speculate.

To an extent, the rise suggests a post-pandemic "new normal" for cotton prices is yet to be established. Moreover, global cotton consumption is projected to remain low, with major consumers like India facing sluggish demand. Also, the current stock-to-use ratio is at its highest level since the pandemic's beginning, indicating ample supply.

A complex situation with geopolitical tensions

What's more, despite the weak demand outlook, some factors could be driving speculation. China's increased import forecasts, despite high stockpiles, could be seen as an attempt to manipulate prices, some analysts say. Geopolitical tensions are another factor, as the ongoing trade war and wars in Europe and the Middle East could disrupt cotton production or trade flows, leading to price volatility.

"Indeed, the global cotton market is in a complex situation," one analyst concluded. "With China's import surge and potential geopolitical motives, the 'new normal' for cotton prices remains elusive. While the recent rise might benefit some producers like Pakistan, consumers might face the brunt of higher prices in the near future."