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The uneasy calm continues in the global cotton market. As per US Department of Agriculture’s monthly forecast, global production and use of cotton is exactly in balance for the marketing year 2023-24, with world demand holding on to the post-Covid average of 25 million metric tons, significantly below long-term average. With carryover inventory also at eight years high, what explains the recent upsurge in global cotton prices?

The biggest surprise this year was import demand from Pakistan, which collapsed to lowest levels in seven years. Per USDA, Pakistan’s import demand is 33 percent lower than last year despite a 10 percent projected rise in domestic use of cotton, owing to the large increase in domestic production during the latest season. Domestic cotton arrivals breached 8.5 million bales (of 170kg) in the country – highest in at least 5 years, which threw import projections off balance for the country. Even so, it seems USDA’s import forecast of 3.8 million bales (of 170kg) for the marketing year 2023-24 are still on the higher side, and the final tally may clock in another 20 percent lower.

Yet lower imports by Pakistan are continuously being off set by higher numbers elsewhere. Chinese fiber imports are all set to double during the current marketing year, which would also be the highest in ten years. However, higher Chinese cotton imports haven’t exactly come as a surprise. As the global supply chains elsewhere in the world prepare to wean themselves off China after the Xinjiang came into effect, it appears that the giant panda will not go without a fight.

Like all things China, the country has proven itself supremely adept at meeting the challenges of a brave new world. Rather than letting itself bogged down by distractions, the world’s largest yarn producer has taken the blow to its chin with grace. If the world doesn’t want Chinese origin cotton – no problem. In just one year, the centrally planned state massively scaled back its own domestic production, instead importing cotton from the rest of the world to spin fiber and value add at home. You can say no to Chinese origin cotton, but you can’t say no to yarn spun in China using cotton of Brazilian origin.

And that might alone explain why even as world carryover inventory is reaching historic proportions, cotton prices have found resistance above 85 cents since the beginning of calendar year 2024. Inventories might be running high, but tradable surpluses – not so much. This might mean higher prices for cotton exporters such as US and Brazil, but also means that China will remain their largest buyer with an ever-rising appetite.

For all the competitors smelling blood and predicting global textile shifting out of China, it might be too early to write the giant off. When it comes to yarn and fabric production, no country can come close to match Chinese scale or its prices. China might lose some market share, but if it turns into a race to the bottom, chances are China will manage to come on top afterall.

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