Cotton Hits 15-Year High

Posted by Matt Hopkins|7 September 2010

Cotton rose to 15-year highs in early trading this week as global demand continues to outpace production and inventories shrink to capitalize on high prices.
Fueling the price are a confluence of factors, including India’s announcement Monday that it will extend an unpopular export tax for large shipments. India’s Trade Secretary Rahul Khullar recanted last month’s assertion that cotton traders would have unlimited, duty-free exports when the tariffs expired in October.

Khullar said India would impose a prohibitive export tax on any cotton exports above 5.5m Indian bales in a move to slow down overseas sales to ensure low prices for the domestic industry. Officials have indicated that exports will be re-evaluated on a monthly basis depending on domestic supply and demand.

Adding to cotton’s uncertain supply is Pakistan’s massive flooding, which has washed away an estimated 2.3 million bales. The country’s cotton industrylost more than 15% the current cotton crop. Roughly 2.3 million bales of the crop, which was expected to reach 15 million bales, have already been damaged.

This troubling turn comes amid heightened demand for the fiber, which has outpaced production the past five years, leaving reserves low in many countries. In conjunction, US production has been falling, and consumption in emerging economies, especially India and China, has been rising rapidly.