In February 2022 Russia invaded Ukraine and a year later, economic upheavals across the globe have made everything worse in a post-pandemic world. Even after 12 months, there is no solution in sight for Ukraine and Russia as both try out newer forms of battle strategies and the world watches in despair.
Effects of a year-long war
The first impact of this war was sky rocketing oil prices, which the world has learnt to deal. Oil prices stands at almost $104 a barrel today and this has cascaded into price hike of commodities, metals and products, making consumer budgets stressed and stretched. The average Western consumer, one of the most affected by inflation, is reorganizing their lifestyle to combat with inflation ridden market realities. The long-drawn out Western sanctions against Russia has boomeranged and instead of affecting Russia, has affected the sanctioning countries more as they are now fighting with each other over the severity and degree of sanctions. However, reports say in December 2022 while Europe and the UK were hit by high energy prices, pump-level price of petrol actually decreased a few cents in the US.
Impact on cotton prices
The change in buying behavior during inflation and recession affects non-necessary sectors such as apparels and accessories which in turn has a direct impact on raw materials such as cotton and textiles in general. The readymade garment sector’s staple raw material, cotton prices are going through a roller coaster ride. As supply tightens, cotton prices rise. A large cotton-producing country, India witnessed a jump in prices from Rs 78,000 per candy of 365 kg to Rs 83,000 per candy within the last 20 days.
Fitch Solutions published the 2023 raw cotton forecast in November 2022 stating raw cotton’s price could trade sideways for the remainder of 2022, at around $0.85 to 0.90 per pound. Prices came under downside pressure throughout the third quarter of 2022, easing 38.2 per cent since then due to a strengthening US dollar and a weakening global economic outlook.
As a senior Fitch official pointed out recently, “Looking beyond 2022, we expect prices to find support from a weakening US dollar and increasing import demand, largely caused by US trade restrictions on Mainland China. However, they do not expect a rally due to these expectations of a continued deterioration of the global economic outlook, which we expect to constrain demand. ” Fitch Solutions attributed the continuance of the Ukraine invasion as the most important cause for the current global outlook.
The forecast concludes by December 2023, cotton prices will be around $0.68 per pound, registering a sharp drop from a year ago. The forecast therefore, is a bearish one. The Fitch Solutions report pointed out global cotton output is expected to reach 118.1 million bales in 2023, up from 117.6 million bales in 2022, a year-on-year increase of 0.43 per cent. Of the primary producers, mainland China, India and Brazilian productions will see the most increase.
In China, the anticipated cotton output will reach 27.4 million bales of 480 pounds each in 2023, a year-on-year increase of 2.1 per cent. However, while posting year-on-year growth of 2.1 per cent, output is still expected to remain marginally lower than the average output between 2018 and 2022 of 27.8 million bales. As the US remains determined to continue its ban on Xianjiang cotton, the ongoing trade restrictions on goods produced in the Chinese province of Xinjiang have effectively removed much of China’s output from global markets, cutting global supply and providing support for increase in prices.