The current international cotton price has reached a 10-year high, and cotton prices in the international market and the Indian market are rising every day. Abundant liquidity coupled with strong demand for commodities creates strong momentum in 2021. But now, according to the Indian Entrepreneurs Federation (ITF), fundamentals are changing and current prices will fall rapidly.
Factors affecting price adjustments include lower demand for fashion products due to inflationary trends in all markets and a shift in spending towards services; retail sales contracted in the US and UK in December and the US consumer confidence survey fell nearly 6% in January to November 2011 lowest levels since; customers are resisting accepting new prices in international markets, and the same signal is reflected in new order confirmations in developed markets.
In addition, cotton is not a necessity or commodity like cooking oil or rice. Its demand depends entirely on people’s spending power. As inflation rises, spending power will be tested, and cotton is bound to destroy a lot of demand in the future. Alternative fibers are also rapidly penetrating due to the high cost of cotton. Many textile clusters in the Indian state of Tamil Nadu are witnessing this change, which will also rebalance demand.
Some of the factors listed by the ITF include boycotts by value chain partners and even domestic retail markets due to exorbitant prices. Inflationary trends have also hit consumption, with retailers opting for alternative fiber products. Signals from developed countries about tightening liquidity and raising interest rates will also reduce speculative interest in cotton, whose prices are also at historically high levels.
In 2021, prices for most commodities reached 10-year highs, with many correcting by 15% to 20% from peak levels. This can also happen with cotton. In addition, declining demand prospects for fashion exports, changes in the fiber base, inflationary trends in the domestic fashion sector – all factors will lead to lower cotton consumption levels.
Additionally, expectations for strong global cotton planting will act as a brake on speculation and bring bearish sentiment to cotton trade. The rise over the past 45 days has been largely speculative, and the ITF believes current prices are unsustainable.
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