Cotton prices continue to surge despite global economic slowdown estimates

Cotton prices have surged nearly 20% since the onset of the Middle East war in late February, despite expectations of a global economic slowdown and contracting demand.

Before the US and Israel’s joint war against Iran erupted on Feb. 28, cotton traded around $0.65 per pound, but driven by geopolitical tensions and supply chain disruptions, cotton prices surged 18.5% to $0.77, breaking a two-year downward trend, data from the World Bank showed.

Zafer Ergezen, a futures and commodity markets expert, told Anadolu that the price spike is the result of a “perfect storm” of geopolitical and environmental factors, as the conflict and the effective blockade of the Strait of Hormuz caused massive cost-push inflation, driving up energy, transport, and fertilizer costs while delaying global shipments.

The cost of synthetic alternatives to cotton also drove up prices. In contrast, oil prices doubled, and the war’s disruption of mono-ethylene glycol (MEG) supplies caused polyester production costs to surge.

The competitive advantage of synthetic fibers lost its edge, prompting textile manufacturers to turn back to cotton to protect profit margins, shooting up cotton demand.

“Each day that MEG prices remain high, cotton demand will surge even further, since producers may switch directly to cotton instead of polyester,” he said.

Climate change is also a factor driving these price dynamics, as severe droughts in regions such as Mexico and Texas, which account for roughly 40% of US cotton output, have resulted in declining yields and planting areas, according to the US Agriculture Department's Economic Research Service.

Ergezen stated that these weather-led supply shocks are similar to the recent crises seen in cocoa, coffee, and sugar prices.

He noted that a ceasefire in the Middle East would not be enough to offer immediate relief for buyers.

“Even if the war ends, it doesn’t seem feasible for cotton to return to pre-war levels, at least for now,” he said. “Meanwhile, without economic growth returning to its previous pace alongside rate cuts, it seems unlikely to see a sustained increase in demand for cotton.”

He mentioned that one of the key factors driving cotton prices is quality, as the decline in some high-quality cotton stocks heightened concerns.

“Premium cotton prices are on the rise much more sharply, and since it’s not easily accessible worldwide, there are massive payments made for it, but during such turbulent periods, it’s possible that the quality differentiation we’re seeing now in the premium segment will come to the forefront much more prominently,” he added.

*Writing by Emir Yildirim