There Is Still A Risk Of Declining Consumption Growth. Cotton Prices Are Expected To Recover Slowly In The Future

According to the commodity market outlook recently released by the World Bank, after falling 3% in 2024, commodity prices are expected to fall 5% in 2025 and 3% in 2026. This will lead to the lowest total commodity prices since 2020. The decline is expected to be driven by oil prices, but to some extent offset by rising natural gas prices and stable prospects for metals and agricultural raw materials.

According to the report, the average price of Brent crude oil is expected to be 80 dollars/barrel in 2024, 73 dollars/barrel in 2025, and 72 dollars/barrel in 2026. Therefore, from the high point in 2022, the average oil price is expected to decline for four consecutive years until 2026, which is only slightly higher than the level in 2021. The possibility of the escalation of the conflict in the Middle East is the huge upward risk of energy prices in the near future, which may bring chain consequences to other bulk commodities. However, in the long run, including the slowdown of global oil demand, diversification of oil production, and the ample oil supply held by OPEC, it shows that oil prices face considerable downward risks, especially if OPEC cancels the recent production cut.

In addition, there are also bilateral risks in the demand of economic activities for industrial commodities. On the one hand, China's economic stimulus measures and the higher than trend growth in the United States may push up commodity prices; On the other hand, weaker than expected global industrial activity may inhibit the growth of commodity demand.

In the third quarter of 2024, the global price index of agricultural raw materials remained basically unchanged. Some timber products rose due to supply shortage, but were offset by the decline of other commodities (such as cotton and tobacco). The demand for these products declined while the supply increased. After a moderate increase in 2024, the price index of agricultural raw materials is expected to keep rising slightly in the next two years, supported by the increased demand.

In the third quarter of 2024, cotton prices fell by more than 6%, 15% lower than the same period last year. The recent decline was due to weak demand and high crop yields in 2024/25. According to the forecast of the US Department of Agriculture, the global cotton output is expected to increase by 4% in 2024/25, mainly from Brazil (+15%), Turkey (+25%) and the United States (+33%), which offset the output reduction in India (- 6.5%) and Pakistan (- 10%). As global consumption is expected to increase by 2.3%, the global cotton inventory consumption ratio is expected to stabilize at about 70%.

In 2024, the cotton price will fall by nearly 10%, but it is expected to rebound in 2025 and 2026 due to the slow growth of supply.

However, there are still risks of declining consumption growth, mainly because global economic growth may be lower than expected and global cotton production may be higher than expected.