WITH the global price of Australian cotton now 15 per cent up on a fortnight ago shippers are worried markets will look elsewhere for supply.
Cotton was trading at 77 cents Monday in the international markets, up from 62 cents three months ago. Six months ago the price was below 60 cents.
At the moment the market is focused on weather developments in the Northern Hemisphere. Dryland producers in West Texas, the region that dominates US cotton production, are hoping for rain within the next week to ten days or they face significantly reduced yields.
Dry weather at planting time in India and Pakistan this season and lower production prospects are now playing to Australian hands.
“There is a tightness of supply, particularly in the better grades, and that’s why there’s interest in Australian product,” said Cliff White, OmniCotton.
The flipside is that with the futures market moving higher Australia could price itself out of emerging markets on the sub-subcontinent, as it has done to some degree in Indonesia.
And when it comes to man made fibres - suddenly polyester looks more attractive.
“In the last couple of weeks we have seen cotton increase and that price is going to impact on demand for our product,”
“That’s cotton up 15 per cent and man made fibres virtually unchanged.”
Mr White said the market price rise has been a challenge when one considered the enormous volume of Chinese cotton in store, some of it up to five years old.
“There’s plenty of cotton in China but the government there has made good progress selling a portion of it ,” Mr White said.
Never-the-less spinning factories in Bangladesh, India and Pakistan were having trouble adapting to the wild price spike.
“For two years we’ve had price stability and then, bang, in two week’s we’ve gone up 15 per cent,” he said. “That’s a hard way to run a business, say the spinners.”
Driving this free market roller coaster are speculative and hedge funds. Mr White said the new reality of business appeared post 2008 when large hedge funds shifted focus away from equities to agricultural markets like cotton.
“These funds have a long horizon and can afford to invest in futures to a large scale which can distort price levels,” says Mr White.
“There is a limit that the trade can participate as company risk management policies kick in.”
Come in spinner
THE crazy notion of bringing cotton manufacturing back to Australia is not so far fetched, says Hong Kong based trader Cliff White, of Omni Cotton.
Back in the 1980s the number of cotton spinners operating out of Hong Kong would fill a book he recalled, while these days those remaining wouldn’t occupy a postage stamp.
That scenario has been repeated in different countries since the industrial revolution, with spinning mills migrating away from Europe to Asia and now moving out of developing nations like Japan - whose demand drove the development of Aussie cotton 40 years ago - to cheaper destinations like Bangladesh.
As developing nations become more expensive and as long as major consumers demand ‘sustainable’ product, it is not unthinkable to imagine Australian automated technology working to value add Australian cotton in the coming decades.
Cotton spinning in Australia would help ‘close the loop’ on complex supply chains - something major buyers like H&M and Nike are keen to do.
Mr White said the Australian reputation for quality was unsurpassed, but price would always be a bugbear with the current spike pushing Australia out of new markets.
