Trade war or not, U.S. cotton exports set for banner year
(Reuters) - The escalating U.S.-China trade dispute is unlikely to derail the stellar run for U.S. cotton exports this year due to robust demand, crop issues in India and lower synthetic fibre output from China, traders and analysts said this week.
The natural fibre came into focus in the dispute after Beijing proposed fresh tariffs on U.S. goods and commodities, including cotton and soybeans, following similar moves by the United States.
"It should be a zero-sum game in terms of trade, with U.S. cotton going to destinations other than China and competing countries taking more of Chinese market share," said Beau Stephenson, cotton merchant at Dallas-based Omnicotton.
China, as a large producer of synthetic fabrics like polyester and nylon, is already dealing with problems of its own as the country has cracked down on pollution emitters, which include makers of synthetic fabrics. That could boost cotton's market share among textiles, analysts said.
Market participants say the conflict could even fuel an acceleration in near-term U.S. shipments to China, in turn boosting 2017/18 exports. Last year was a multiyear high for U.S. cotton exports.
"If the U.S. government takes time to act, therefore delaying retaliatory actions by China, mills could rush to import as much as they can before the tariffs hit," said Gabriel Crivorot, analyst at Societe Generale in New York.
Traders expect 2017/18 year crop exports to top a U.S. Department of Agriculture (USDA) forecast of 14.8 million 480-pound (218 km) bales and surpass last year's exports of 14.9 million bales, the highest since 2005/06.
Total bales committed for 2017/18 now stand at about 16 million 480-pound bales. At 2.6 million or 16 percent, China accounts for the largest share of that figure, latest export sales data showed.
Overall, the superior quality of U.S. cotton would help mitigate any significant impact, analysts said, as it remains the most preferred variety.
"U.S. cotton is popular for a variety of reasons and it can find a home," said Louis Rose, director of research and analytics at Memphis, Tennessee-based Rose Commodity.
However, some analysts expressed caution over the longer-term economic impact from an escalation in the dispute between the two world powers.
"My main worry is that a trade war would push the global economy into recession," said Peter Egli, director of risk management at British merchant Plexus Cotton, adding that such a scenario could reduce cotton consumption.
Graphic-U.S. Export Sales: https://reut.rs/2IV8aVW
The United States could benefit from problems in India, the second-largest exporter, where output is dropping due to a pest infestation.
The USDA sees global consumption at more than 120 million bales in the current crop year, levels not reached since 2007.
"As people move away from polyester and man-made fibres, I think cotton will continue to get a bigger market share of overall textiles," Omnicotton's Stephenson said.