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    Chapter 1 - The world cotton market - Cotton prices 


    Competition is at the heart of a market economy. Timber must compete with fabricated wood products and the development of plastics. Coffee and tea must compete with each other, and with milk, soft drinks, powdered drinks, orange juice and other choices. Copper must compete with fibre optic cables. Sugar competes with corn sweeteners and artificial sweeteners. Cocoa must compete with other types of candies. Grains compete with each other and with oilseeds, and other examples of competitive pressures affecting natural commodity industries abound.


    For cotton, competition with polyester is a challenge that is accelerating as technology results in lower costs of polyester production and an increased range of uses for chemical fibres. Production of all fibres other than cotton rose from 5 million tons in 1960 to 10 million in 1970, 16 million in 1980, 19 million in 1990, and then leaped to 30 million in 2000. Non-cotton fibre production was estimated at 37 million tons in 2006.

    Cotton use rose at an average rate of 4% per year from 1998/99 through 2006/07, compared with average world population growth of 1.7% per year. Cotton use per capita increased to a record 3.8 kilograms in 2005. Many factors affect end-use demand, including income and consumer preferences, but cotton as a commodity industry must remain price-competitive with polyester and other chemical fibres, and so cotton has experienced declines in real prices over time.

    Relative fibre prices are extremely important in determining fibre market shares. During most years in the 1980s and 1990s, cotton prices were higher than prices of polyester, explaining much of the decline in fibre market share for cotton during those years. However, since 1998/99, cotton prices have been lower and polyester prices have been higher. As a consequence, cotton consumption rose at an average rate of 3.7% per year during the period from 1998 to 2006, compared to average growth of 1.5% per year in the two decades prior to 1998 (see figure 1.28).


    Source: ICAC

    One common area of misunderstanding is the relationship between oil prices and prices of polyester fibre. Many people assume that, because polyester is derived from chemicals refined from oil, increases in crude oil prices lead to increases in polyester prices. However, the precursor chemicals used to make polyester account for only a small fraction of oil consumption, and each of the chemicals has multiple uses. As a consequence, there are separate markets for the chemicals used to make polyester, and those markets have little correlation with oil prices. Therefore, prices for polyester fibre are not determined by the price of oil, and in fact there is almost no statistical correlation between oil prices and polyester fibre prices.