The price of cotton has stabilized at 84 cents a pound, having bottomed out at the end of last week and earlier this week due to the escalating trade dispute between the US and China, plunging 9 cents within three trading days. In response to the imposition of US tariffs on Chinese products, China also applies an import duty of 25% on US cotton from 6 July. This makes US cotton prohibitively expensive for many Chinese buyers. Therefore, they are now looking for alternatives. Indian exporters are already reporting stronger demand from China. If the punitive tariffs continue in their present form, India expects a quintupling of cotton exports to China to 5 million bales (850 thousand tons). This is bad news for US cotton exporters, who may find it difficult to find alternative customers without substancial discounts. The significantly lower price already shows this. Cotton is thus back at the level of mid-May, but still significantly higher than at the beginning of the year. Nevertheless, China can not completely replace US cotton. In addition, cotton supply from India is likely to become more expensive because of higher demand. Previous buyers of Indian cotton, for example from Bangladesh and Vietnam, are likely to look for alternatives and possibly find US cotton.

Source: Commerzbank Commodity Research