New york: 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.
According to Anadolu Agency, Zafer Ergezen, a futures and commodity markets expert, stated that the price spike is the result of a 'perfect storm' of geopolitical and environmental factors. 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.
Ergezen highlighted that each day that MEG prices remain high, cotton demand will surge even further, as producers may switch directly to cotton instead of polyester. Climate change is also influencing 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 noted that these weather-led supply shocks are similar to the recent crises seen in cocoa, coffee, and sugar prices. He stated that even a ceasefire in the Middle East would not be enough to offer immediate relief for buyers. Cotton's return to pre-war levels seems unlikely without economic growth returning to its previous pace alongside rate cuts.
He further 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 rising much more sharply, and since it's not easily accessible worldwide, there are massive payments made for it. During such turbulent periods, the quality differentiation in the premium segment may become more prominent.