The market is starting to show a clear downturn at an accelerating pace, but is this sustainable? 

The answer, as paradoxical as it may seem, does not come from cotton itself but rather a suffering international market, just as we start the new cotton season. Cotton supply and demand is currently well balanced and in itself should not lead to big swings in NYF prices. The most salient points from these outside events can be summarized as per the below: 

- How long can the freight market maintain such chaos yet still report stunning financial results. Shipping companies are now projecting profits in the tens of billions of euros while the freight market is not stabilising in terms of efficiency, disruptions and with increasing costs to the supply chain. The question remains, can one continue to pay huge costs to ship goods and yet suffer with massive delays that raw materials and manufactured goods are experiencing? 

- Will the uninterrupted rise in oil prices have an impact on the price of cotton (cotton fibres are in competition with synthetic fibres) but also on the purchasing power of households whose energy bills are soaring? Are global movements such as the hunger riots or the Gilet Jaune (yellow vests) set to return once again? 

- The end of the Cold War has led to an unprecedented economic war, particularly with China. Australia seeks to align itself with US foreign policy and in doing so has cancelled a huge contract with France for submarines that had been agreed. It marks a turning point and a new ice age in international relations. The Europe Union has its back to the wall and will have to reposition itself quickly if it does not want to lose its capacity to intervene on the international stage. However, we must not forget that China is still the world’s factory and this is significant. Will the fragility of Western purchasing power withstand the price of Chinese manufactured goods in cotton, for example? 

- The answer probably lies with the economy in the Ancient Empire. The situation of the Evergrande real estate conglomerate, its stratospheric debt of 260 billion US dollars and its ability to repay, or not, their debtors. Fears are mounting of a collapse and the repercussions this could have on the Chinese economy and whether it might lead to a dominos effect. The unlimited supply of cash into all markets has sparked volatility and inflation (for the moment moderate) but in such an environment, the collapse of an over-indebted group could provoke an explosion that would be hard to contain in the currently fragile market. 

We therefore believe that it is difficult to be over optimistic for the cotton market, which will have to navigate an increasingly unpredictable international landscape moving forward