As countries adopt severe containment measures to limit the spread of disease and protect human health, business activity and many other facets of life have come to a halt. The stringent containment measures to slow the spread of Covid-19 have and will continue to have important social and economic costs.
As many businesses have been required to slow down or close for the consideration of public health, manufacturing and supply chain activity in Asia and Southeast Asia have decelerated as orders have slowed or have been cancelled. Although the full impact is not yet known, the potential for a further slowdown in global economic growth can be expected and thus provide additional stress to the sector. Prices continue to fall under the pressure of the current environment. The ICAC’s (International Cotton Advisory Committee) global production estimate for the 2019/20 season remains unchanged at 25.9 million tonnes as their consumption estimate has been revised downward to 24.6 million tonnes.
Consumption in Asian and Southeast Asian manufacturing countries has been revised down as demand has slowed dramatically from retailers in Europe, North America, and China. Consumption or mill-use of cotton lint in China had already been revised down for the 2019/20 season considering the trade dispute with the United States and slowing economic growth. For the current season, the consumption estimate for China is now 7.1 million tonnes, a 14% decrease from the previous season. Government interventions for recovery and reinvestment due to the pandemic are needed as well as eventual trade resolutions for a broader economic recovery, including the cotton market. During this unprecedented global pandemic which emerged as global economic growth had already begun to slow, the uncertainty in markets has increased as countries struggle to manage the spread of Covid-19. ICAC estimates that the initial impacts on GDP (Gross
Domestic Product) in many major economies to be significant in the short term. For the 2020/21 season, projections attempt to reflect this unprecedented environment including current developments in the Covid-19 pandemic that have already impacted the sector with further and full impact remaining unknown. Before the Covid-19 pandemic, the global cotton sector had already been under stress, lowering prices.
While the impacts are likely greater for consumption than production, the global production estimate for the 2020/21 season is at 25.6 million tonnes, a 1% decrease from the current season’s estimate. Planting intentions are likely to remain under pressure from falling prices and possible competition for food crops in a crisis scenario. Containment measures in countries intended to slow the spread of Covid-19 may impact supply chains for seeds and inputs for the 2020/21 season as physical business slows or halts in many countries.
As a result of containment against the advance of coronavirus, the global textile industry is almost at a standstill and cotton is no longer sold. Fibre prices are at their lowest level since the 2008 crisis. The textile industry is “wiped out” by the Coronavirus, as the trading of cotton and other raw materials is at a standstill. Retailers refused to take up the delivery of cotton for the manufacturing thereof. A lot of cotton cannot be traded, and is still at the ports, meaning it loses value. Trading is caught between the hammer and the nail, between producing countries that need to ship their fibre and customers who do not want to take delivery of cotton. Some trading companies could disappear, as the economic impact is so strong in the futures market. In African countries that have not sold their entire crop, cotton companies should be forced to lower the price to the producer for the next season.
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