Abares reversed some of its gloom over cotton price prospects in the face of Covid-19, even as it cut its forecast for wool values to an eight-year low, warning of the building of stockpiles which “may take several years to clear”.
The official Australian commodities bureau pegged at 67.0 cents a pound its forecast for average 2020-21 cotton prices, as measured by the Cotlook A index of physical values.
That would represent a decline of 4.3 cents a pound year on year, and the weakest season-average value since 2008-09, amid the world economic crisis.
However, it also represented a 4.0 cents-a-pound upgrade from the price level that Abares expected in June.
‘Price-induced area reductions’
Cotton prices will “fall due to high stock levels and competition from synthetics”, the bureau said, noting that the knock-on effects of Covid-19 have “reduced consumer demand for apparel and disrupted all parts of the clothing supply chain, driving up stocks of unsold textiles and raw fibres”.
“Interruptions to cotton mill operations during 2020 and reduced retail demand are expected to drive up stocks of raw cotton in key exporting and importing nations.”
However, it reduced by some 200,000 tonnes, to 800,000 tonnes, its forecast for the world cotton production surplus in 2020-21, as started last month, citing a weakened output estimate in the face of depressed prices.
“World cotton production is forecast to fall by 5% in 2020-21 to 24.9 million tonnes, due to price-induced area reductions in the United States, India, Pakistan, China and Brazil,” Abares said.
Consumption, meanwhile, was forecast rebounding by 2.0m tonnes from coronavirus-hit 2019-20 levels, although remain 2.1m tonnes short of their high in 2018-19.
However, for rival natural fibre wool, Abares slashed its forecast for average 2020-21 prices, as measured by Australia’s benchmark eastern market indicator, by 170 Australian dollar cents per kilogramme to 1,040 Australian dollar cents
That would be the lowest price in eight years, and down more than 400 cents from the 2019-20 average.
The bureau nudged higher, by 4,000 tonnes to 280,000 tonnes, its forecast for wool output in the key Australian market in 2020-21, “due to improved seasonal conditions”, with recent rains expected to lift the average wool cut per head.
Meanwhile, Australia’s exports, which had in June been forecast recovering to 360,000 tonnes, were now seen flat year on year at 328,000 tonnes, at the weakest level since at least the 1990s, undermined by pandemic-hit demand.
‘Demand may be slow to recover’
“Consumer demand for woollen apparel may be slow to recover, due to continued Covid-19 control measures and reduced incomes in key consumer markets.
“This will result in a slower recovery in demand for Australian greasy wool exports,” which was expected to “keep prices and volumes down for the short to medium term.
“Stock accumulation is the natural consequence of the current global situation,” Abares said, seeing the potential for persistent weakness in prices.
“Stockpiles of wool accumulated during this time may take several years to clear, so can be expected to place downward pressure on prices over the medium term.”
The bureau reported at 300,000-400,000 bales industry estimates for Australia’s current wool stocks, a figure “expected to continue growing for the remainder of 2020 while prices remain low and export demand remains weak”.