Cotton is bearing the brunt of the escalating tariff war between the US and China. Prices have collapsed to multi-year lows in the US, the world’s largest exporter of the natural fiber. China — the world’s largest consumer and importer — has almost stopped buying American-origin cotton, and has imposed a retaliatory tariff on US-origin material. Also, the Asian major has slightly tweaked its inventory policy, by moving to stock rotation rather than de-stocking. In the absence of large-scale Chinese purchases, cotton prices have collapsed to a three-year low.
Pessimism now pervades the world cotton market. Production is projected to outpace consumption in 2019-20, and will add to already high stocks. This expectation too is seen as exerting a downward pressure on prices. Short-term oriented market participants are more pessimistic about cotton prices and are exiting their positions in droves. This has had a consequential impact on the price of the fiber in other countries, including India. Because the Indian market is integrated with the global market through the trade route, global cues impact Indian prices.
A very substantial part of US’ cotton production is intended for the overseas market, especially China. The US is most likely to harvest a bigger cotton crop — possibly 20 per cent higher — in 2019 compared to the previous year, and will end up with multi-year high stocks.