Natural fibres: June quarter 2020
Natural fibre prices to fall in 2020–21
The world cotton indicator price is forecast to average US63 cents per pound in 2020–21, down by 12% from 2019–20. Interruptions to cotton mill operations during 2020 and expected price competition from synthetic fibres are expected to keep cotton prices low throughout 2020–21.
The Eastern Market Indicator (EMI) price for wool is forecast to average 1,210 cents per kilogram in 2020–21, down by 17% from 2019–20. The EMI is estimated to have fallen by 25% in 2019–20. This is due to textile manufacturers substituting away from wool in response to lower demand in major wool-consuming countries. Closure of clothing stores in these countries is expected to reduce demand for woollen apparel manufacturing in 2020–21.
Price forecasts for cotton and wool have been revised down since Agricultural commodities: March quarter as a result of the COVID-19 pandemic, associated control measures and low oil prices. Lockdowns have caused closures of clothing stores and textile mills across the world. Low oil prices are expected to hold synthetic fibre prices low, driving strong competition in the use of substitute fibres in textile blends.
Competition from substitute fibres
If crude oil prices remain low over the short to medium term, prices of synthetic fibres will also remain low. This will provide an incentive for manufacturers to substitute more synthetic fibre into textile blends instead of natural fibres. This incentive for substitution is expected to put downward pressure on the prices of cotton and fine to medium wool.
Wool production to be constrained by low sheep numbers
Australian shorn wool production is estimated to have fallen by 6.2% in 2019–20 to 281,000 tonnes. Prolonged dry seasonal conditions across most wool-growing regions reduced the number of sheep shorn nationally, and the average wool cut per head fell to a 30-year low.
Shorn wool production is forecast to fall by a further 1.7% in 2020–21 to 276,000 tonnes, despite improved seasonal conditions. The expected fall in production is driven by a forecast 4.1% fall in the number of sheep shorn nationally as a result of low opening sheep numbers. Strong demand for sheep meat and the less favourable demand outlook for wool are expected to provide farmers with an incentive to turn off lambs rather than promote them into wool flocks. The number of sheep shorn is also expected to fall because of an expected move to longer shearing intervals. Lower wool prices and the uncertain outlook for wool demand reduce the incentive for higher-frequency shearing, which has been used in recent years to cash in on high wool prices.
The average wool cut per head is forecast to increase by 2.4% in 2020–21 to 4.21 kilograms greasy, 5% below the 10-year average to 2018–19. This will partially offset the effects of lower sheep numbers and less frequent shearing. Average to well above average rainfall over the wheat–sheep zone since February 2020, particularly in the south-east, has rapidly increased pasture availability and ended the need for supplementary feeding in most areas. Above median July to September rainfall is currently forecast across most wool-growing regions and this is expected to support pasture growth during winter and build soil moisture ahead of peak pasture production in spring. This should allow sheep to grow heavier and better-quality fleeces for spring shearing.
Lower wool auction clearances and prices are expected to have reduced the incomes of wool-focused farms more than the incomes of diversified lamb or cropping farms. The volume of wool sold at auction from July 2019 to April 2020 was down by 20% from the same period in 2018–19, and the EMI was down by 38% year-on-year. Low auction clearances and export volumes throughout 2019–20 are expected to result in stock accumulating in brokers' and exporters' stores, as well as on-farm.
World cotton stocks up due to interruptions to milling
World cotton stocks are forecast to rise to 22 million tonnes by the end of 2020–21, up 4.7 million tonnes since the start of 2019–20. This rise in stocks is expected to be largely driven by interruptions to milling of raw cotton in all major consuming countries as a result of measures implemented to control COVID-19.
Global consumption of raw cotton to recover slowly
The disruption of milling and textile production following the COVID-19 lockdown will result in a forecast 14% fall in global consumption of raw cotton to 22.5 million tonnes in 2019–20. This represents a downward revision of 3.7 million tonnes. Significant disruptions to milling and raw cotton imports have occurred in China, India, Pakistan, Bangladesh and Vietnam—countries that together account for more than 70% of global cotton consumption each year.
World cotton consumption is forecast to increase by 8.4% in 2020–21 to 24.4 million tonnes, although remaining 7% below 2018–19 levels. Retail sales of apparel fell following store closures during the COVID-19 lockdown. As a result, stocks in clothing supply chains are expected to have increased. Cotton milling and textile production capacity are likely to recover slowly. Regardless of the health of supply chains, recovery of domestic industrial activity will rely on the easing of pandemic lockdown measures. Recovery of full production capacity in mills will depend on the reopening of supply chains (see Opportunities and challenges).
Global production of cotton to fall but remain high
World cotton production is forecast to fall by 2.8% in 2020–21, largely driven by an expected 5.5% decrease in planted area in response to an anticipated fall in the price of cotton. Area planted to cotton in India in 2020–21 has been revised down by 500,000 hectares. The fall would likely have been larger, but India has a minimum price support scheme that distorts market signals to Indian producers. Area planted to cotton in the United States and Pakistan is also forecast to fall due to farmers planting alternative crops such as maize, soybeans or sugar. Area planted to cotton in Brazil is forecast to fall by 8% from historical highs in 2019–20. The fall is expected to be constrained by a weaker Brazilian real, which is expected to support local currency returns for Brazilian cotton growers.
Cotton exports to face a buyer's market during 2020–21
World cotton trade is expected to increase by 3% in 2020–21, driven by increased milling activity in major importing countries such as China, Vietnam, Bangladesh, Turkey and Indonesia. Total cotton supply (the sum of production and opening stocks) in 2020–21 is forecast to be almost twice as large as consumption, with lower retail demand for apparel and increased competition from lower-priced synthetics. As a result, exporters will be competing in a low-price environment.
Weaker currencies in Brazil and India are expected to help make their exports competitive, although the United States is still expected to be the largest exporter of raw cotton.
Australian cotton crop to begin recovery
Australian cotton production in 2020–21 is forecast to rise to 1.7 million bales, after falling to a 12-year low of 590,000 bales in 2019–20. Recovery from these levels requires significant recharge of dam levels and soil moisture profiles. The Bureau of Meteorology winter rainfall outlook, issued on 4 June 2020, forecasts more favourable planting prospects for the 2020–21 cotton crop. However, area planted to cotton is still expected to remain relatively low. Recovery in irrigated cotton production to pre-drought levels (4.7 million bales in 2017–18) is contingent on significant recharge in public dams and on-farm storage.
Opportunities and challenges
Demand for textile fibres subject to recovery in disrupted supply chains
Demand for raw cotton and wool for use in the manufacture of apparel is determined by production decisions and demand signals at various points in the clothing supply chain. Mill demand for textile fibres is determined by downstream demand for yarn and textiles and the relative prices of the raw fibres. Consumer demand for clothing determines the price, volume and composition of clothing orders from manufacturers. These market signals change periodically as manufacturers adjust fibre mix in response to seasonal changes in fashion.
The COVID-19 lockdown has caused the closure of clothing stores in key consumer markets. This resulted in lower revenue for clothing retailers who have cancelled, delayed or required significant discounting of imports from clothing manufacturers. Cancellations and delays of contracts with manufacturers have fed through to cancellations and delays of textile fibre imports.
Retail demand for clothing is likely to be slow to recover to pre-COVID-19 levels. This will reduce the volumes and prices of forthcoming contracts sent upstream in the supply chain. High-value apparel containing niche natural fibres such as wool or cashmere is expected to recover very slowly. This is because high-end shopping tends to be more responsive to income effects and more constrained to in-person purchases.
COVID-19 lockdowns in manufacturing countries interrupted production of yarn, textiles and clothing. Manufacturing will not return to pre-pandemic levels until lockdown and social-distancing measures are eased. Mills and manufacturers will have accumulated stores of unsold goods and unused raw materials, so demand for raw fibres may be slow to return to pre-COVID-19 levels. Without a large volume of long-term supply contracts issued to manufacturers going forward, manufacturers may not have the need to run at full capacity or purchase large volumes of natural fibres until the supply chain starts to function normally again.
|Natural fibres outlook – June 2020 PDF||6||1.3 MB|
|Agricultural commodities: June quarter 2020 - Commodities - data tables XLS||12||186 KB|
|Agricultural commodities: June quarter 2020 - Statistics - data tables XLS||32||592 KB|
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