Cotton price

Cotton’s main structural risk is polyester substitution. Cotton’s share of the global textile-fibre market has steadily declined over recent decades in favour of oil-based synthetic fibres, mainly polyester (PET). Polyester now accounts for the dominant share of global textile-fibre consumption, while cotton’s share is only slightly above 20–25%. The PET/cotton price spread is therefore priced directly into the market. When oil prices fall, polyester fibre becomes cheaper, and textile buyers — especially large mills in China, Vietnam and Bangladesh — can switch quickly. Because of this indirect link to oil, one of cotton’s most important market references is not an agricultural variable but an energy one. The market closely follows the annual ICAC (International Cotton Advisory Committee) Cotton This Month report to track the supply-demand balance.

In the short term, the largest price driver is the Chinese state strategic cotton reserve. China holds huge volumes of cotton in national reserves — a significant share of global ending stocks — and periodic government auction releases or purchases can move New York prices sharply. When Beijing releases large volumes from the reserve, the market treats it as an increase in global supply and prices come under pressure. When it launches a purchase programme, the effect is the opposite. The market also follows the monthly USDA Cotton WASDE, the USDA Foreign Agricultural Service Cotton: World Markets and Trade report, and weekly ICE certified stocks data for exchange-approved warehouse inventories.

Global cotton output is about 25 million tonnes of fibre a year. Production and consumption are dominated by a narrow group of countries. India (~6 Mt), China (~6 Mt), the United States (~3.5 Mt), Brazil (~3 Mt) and Pakistan (~1.5 Mt) together account for about 80% of world production. On the processing side, the main buyers are the textile industries of China, India, Pakistan, Bangladesh and Vietnam, where much of the global apparel industry’s spinning and weaving capacity is located. The expansion of Brazil is a key structural shift in the market. Rapid growth in the Brazilian cerrado has gradually challenged US export dominance, and Brazil is now one of the world’s largest cotton exporters. Exchange rates — especially the Indian rupee, Brazilian real and Pakistani rupee against the dollar — directly affect exporter competitiveness and domestic producer prices relative to the New York benchmark.