From the Sector

In August 2023, Australian Research Council (ARC) Chief Research Officer Professor Christina Twomey officially launched the ARC Research Hub for Functional and Sustainable Fibres.

Through collaboration with 16 domestic and international Partner Organisations, the team at the ARC Research Hub will be conducting research across three core themes – Sustainability, Circular Economies, and Extraordinary Functionality.

Led by Deakin University, the ARC Research Hub aims to harness Australia’s research capacity in fibre, textiles, and composite materials to develop materials with enhanced functionality, meeting Australian consumer and industrial demand for advanced fibre capabilities including recycling and re-purposing textile waste.
 
Professor Twomey said that the ARC Research Hub is fundamental to increasing collaboration between Australia’s most innovative researchers and vital industries.

“The ARC has a proud history of supporting outstanding research that benefits the Australian community, and the ARC Research Hub for Functional and Sustainable Fibres is a great example of this,” Professor Twomey said.
 
“In collaboration with industry partners, the research team are building on the work undertaken by the ARC Research Hub for a World-class Future Fibre Industry which ended in 2021 – this continued success is no easy feat.

“This new ARC Research Hub will strengthen productivity and competitiveness of the advanced manufacturing sector and will place Australia at the forefront of a global shift towards functional and sustainable materials.”
 
The ARC is investing $5 million over 5 years under the ARC Industrial Transformation Research Program.

It is expected that the ARC Research Hub will address the immediate need to reduce industry’s reliance on petroleum-derived materials and to reduce the environmental impact of supply chains.

The Woolmark Company, the Italian wool fabric mill Vitale Barberis Canonico (VBC) and Haelixa took part in a trial to trace Australian wool fibers up to the final fabric.

Funded by Australian woolgrowers, The Woolmark Company (TWC) is an enterprise that focuses on investments that enhance the profitability, international competitiveness, and sustainability of Australian wool. In their operations, TWC seeks to be transparent and accountable. In line with this strategy, traceability is necessary to ensure transparency and maintain the credibility of TWC.

In December 2021, Haelixa marked wool fibers with their DNA tracing solution. There are infinite DNA markers that could be produced and used to indicate a specific origin, supply chain, material, or particular collection. In this case, a single DNA has been applied to greasy wool and a second DNA marker to scoured wool. The first DNA identifies the origin of the Australian wool, while the second determines the manufacturer where the wool has been further processed; at Vitale Barberis Canonico mill.

Samples were collected from various production stages, where a qPCR test was used to detect each specific DNA marker. Haelixa uses a “Key-Lock” system to detect a marker; one needs to know the particular DNA to screen for, ensuring that the system is tamper-proof. The DNA markers stay safely embedded in the product, enabling traceability of greasy and scoured wool up to greige fabric and finished fabric, respectively.

With increasing cost pressure and competition in the wool fabric market, traceability is becoming a prerequisite to proving authenticity and origin. TWC and Vitale Barberis Canonico support the culture of sustainability and collaboration.

Price Trends

• The nearby cotton futures contract on the Intercontinental Exchange was down just 1% in December and closed the year at $1.84 per kilogram. A year earlier, the March contract closed at $2.30 per kilogram.  
  
  Cotton futures have been inverted for nearly three years because of supply chain disruptions that prevented normal on-time deliveries of international shipments. With the easing of container shortages and increased sailings, cotton futures are gradually reverting to the normal pattern in which contracts for forward delivery exceed nearby contracts by the cost of insurance, storage and interest between delivery months. The May and July 2023 contracts also finished 2022 at $1.84 per kilogram. In November, the May and July contracts were each several cents per kilogram lower than the March contract.
• The Eastern Market Indicator of prices for fine wool in Australia rose 9% in December to US$9.06 per kilogram. A year earlier, the EMI was $9.66. Australian analysts note that sheep for meat, cattle, and grain production, are competing alternatives for the use of land, and wool prices must continue upward if production is to be maintained in 2023.
• Prices quoted by the Indian Jute Balers Association (JBA) at the end of December converted to US$ fell 2% from a month earlier to an average of 74 cents per kilogram. The decline occurred entirely because of a weakening exchange rate. Prices in Rupee rose marginally. A year earlier, quoted prices averaged 84 cents per kilogram. The 16-percent decline year-on-year was caused about equally by a decline in quoted prices in Rupee and a weakening of the exchange rate.  
  
  The Indian jute industry is almost entirely focused on domestic demand, while half of total demand in Bangladesh comes from exports. Because of shortages of higher quality jute, export prices in Bangladesh are reportedly rising.
  (https://www.wgc.de/en/produkte/jute)
  
  India extended the anti-dumping duty at the end of December on jute and jute products imported from Bangladesh and Nepal for a period of five years. Bangladesh had urged the Indian government not to accept recommendations for extension, while the Indian industry was lobbying to ensure the duty remained in place. The duty rates range from approximately $6 per tonne at current exchange rates for low-quality fibres to $350 per tonne for finished products. The duty was originally imposed in January 2017 and was to expire at the end of 2022.
• Prices of silk in China rose 2% during December to US$28.0 per kilogram. Prices in yuan fell marginally during the month, but the RMB rose 3% against the USD. Prices of textile-grade silk in China were essentially unchanged at the end of 2022 compared with the end of 2021. However, prices closed 2022 about 40% above the average level pre-Covid. https://www.sunsirs.com/uk/prodetail-322.html and  https://businessanalytiq.com/procurementanalytics/index/raw-silk-price-index/ .
• Coconut coir fibre in India quoted in US$ remained in a narrow range, averaging $0.205 per kilogram in December. Prices in Rupee have been stable, and changes in dollar prices reflect changes in the exchange rate.

 
Production
 
World Natural Fibre Production in 2022 is estimated as of early January at 32 million tonnes, approximately one million below production in 2021 and down 900,000 tonnes compared with the estimate in early December.

World cotton production is estimated at 24.2 million tonnes in 2022/23 (August to July), 700,000 tonnes lower than in 2021/22 (ICAC.org). World cotton production rose from 20 million tonnes to 25 million between 2020/21 and 2005/06, but there has been no growth in the nearly two decades since.  
 
World production of jute is forecast down nearly 400,000 tonnes in 2022 because of inadequate rainfall during the harvest period to permit proper retting. Production in India is estimated up by 100,000 tonnes to 1.7 million tonnes, but production in Bangladesh fell by nearly one-third to just one million tonnes.
 
Production of coir, flax and sisal in 2022 are each estimated based on recent trends. Coir and flax have each been trending upward over the past decade, while world sisal production has been largely stable.

World wool production is forecast up 5% in 2022 to 1.09 million tonnes (clean), the highest since 2018. The Australian Wool Production Forecasting Committee issued its third estimate of 2022/23 production in December, keeping the estimate unchanged from September. Above-average rainfall in Australia, and across most of the Southern Hemisphere, is resulting in better pasture conditions and a rebuilding of sheep numbers. Sheep numbers shorn in Australia are climbing from 67 million in 2020/21 to 72 million in 2021/22 and to an estimated 75 million in 2022/23. https://www.wool.com/market-intelligence/wool-production-forecasts/  
 
According to the International Sericulture Commission (https://www.inserco.org/), silk production in China dropped from 170,000 tonnes in 2015 to 53,000 in 2020, with further declines estimated during Covid. Consequently, world silk production dropped from 202,000 tonnes in 2015 to 92,000 in 2020, and estimates of production during 2022 remain below 100,000 tonnes.

World Natural Fibre Production in 2022 is estimated at 32.6 million tonnes, down 1.1 million tonnes from the estimate one month ago. Production reached 33.3 million tonnes in 2021 and 31.6 million in 2020.

A drought in Texas where over half of cotton produced in the United States is grown, and flooding in Pakistan, the fifth largest cotton producer, account for the decline (www.ICAC.org).

• Nearby cotton futures on the Intercontinental Exchange rose 14% from the end of July and finished August at $2.60 per kilogram.
• The Eastern Market Indicator of wool prices in Australia, fell 1% from mid-July to mid-August to US$9.27 per kilogram.
• Prices of jute fibre in India quoted by the Jute Balers Association (JBA) at the end of August converted to US$ fell 4% from a month earlier to 79 cents per kilogram.
• Prices of silk in China equalled US$ 28.7 per kilogram at the end of August, compared with US$29.5 per kilogram in July 2022, a change of 3%.
• Coconut coir fibre in India held at US cents 21 per kilogram in August.

World production of jute and allied fibres is estimated unchanged at 3.2 million tonnes in 2022 compared with 2021. High market prices in 2021 motivated farmers to expand planted area in both Bangladesh and India, but dry weather during June and July will limit yields per hectare. Normal monsoon rains resumed in South Asia during August, too late for the 2022 jute crop (https://www.wgc.de/en/).

Production of coir fibre rose by an average of 18,000 tonnes per year during the past decade, and production was at a record high of 1.12 million tonnes in 2021. Production is expected to remain high in 2022.

Flax has also been trending upward, rising by an average of 27,000 tonnes per year, and production in 2022 is estimated to remain above one million tonnes.

World wool production is forecast up by 5% in 2022 to 1.09 million tonnes (clean), the highest since 2018. Wetter weather in the Southern Hemisphere, following eight years of drought, is allowing farmers to rebuild herds (https://www.wool.com/market-intelligence/).

Natural fibres are heavily-traded commodities, and supply chain disruptions are causing significant economic losses as freight costs remain high and deliveries are delayed.

About 40% of world cotton production moves as fibre in international trade each season. Over half of world jute production moves as fibre or product, and around 55% of world wool production is exported as raw wool. Abaca, flax, and sisal are also heavily traded.

Most natural fibre exports traverse back-haul ocean freight routes from the Western Hemisphere to East Asia and the Middle East, from South Asia to East Asia and Europe, from Africa to East Asia and the Middle East, and from Australia and South Africa to China. Such routes are relatively underserved in the best of times, and reduced sailings since the start of Covid are restricting trade volumes.

As of the end of August, Freightos (https://fbx.freightos.com/) quoted the cost of moving a 40’ container from the United States West Coast to East Asia at $793, compared with $1,020 in March 2022. Nevertheless, average freight costs on back -haul routes used by natural fibres remain approximately triple their pre-covid levels. In addition to ocean freight costs, inland transportation is also affected by high fuel prices and a lack of containers. As one example, charges for inland handling of export containers in Bangladesh, the largest exporter of raw jute, increased by 48 per cent during August.

SUPPLY, DEMAND, & TRADE
The latest USDA report featured reductions to figures for both world production and mill-use for both the 2021/22 and 2022/23 crop years.  For 2021/22, the global production estimate was lowered -0.7 million bales (to 116.2 million) and global consumption was lowered -1.9 million bales (to 119.8 million).  For 2022/23, the global production forecast was lowered -1.2 million bales (to 120.7 million) and global consumption was lowered -1.6 million bales (to 119.9 million).

With the decreases in use exceeding the declines in production, figures for global ending stocks increased.  For 2021/22, the projection rose +1.1 million bales (to 84.0 million).  For 2022/23, the forecast increased +1.6 million bales (to 84.3 million).

At the country-level, the largest changes to 2021/22 production were for Brazil (-400,000 bales to 12.3 million) and Uzbekistan (-100,00 bales to 2.7 million).  The largest changes for the 2022/23 harvest were for the U.S. (-1.0 million bales to 15.5 million) and Brazil (-200,000 bales to 13.0 million).

It may be notable that there were no upward country-level revisions for mill-use in either 2021/22 or 2022/23.  The largest revisions for 2021/22 included those for China (-1.0 million to 37.0 million), Vietnam (-400,000 bales to 6.9 million), Bangladesh (-300,000 to 8.0 million), Pakistan (-100,000 bales to 10.9 million), and Uzbekistan (-100,000 bales to 2.7 million).  For 2022/23, consumption estimates were lowered for China (-500,000 bales to 37.5 million), India (-500,000 bales to 25.0 million), Bangladesh (-300,000 bales to 8.6 million), and Vietnam (-300,000 bales to 7.1 million).
The global trade forecast for 2022/23 was lowered -1.1 million bales (to 46.4 million).  The most significant changes on the import side included those for China (-500,000 bales to 10.0 million), Bangladesh (-300,000 bales to 8.5 million), and Vietnam (-300,000 bales to 7.2 million).  On the export side, the largest updates included those for the U.S. (-500,000 bales to 14.0 million) and Australia (+300,000 bales to 6.0 million).
 
PRICE OUTLOOK
Recent volatility was not limited to the cotton market.  A wide range of commodities lost significant value in June.  Between June 9th and July 5th (dates chosen unsystematically to describe the magnitude of declines), cotton fell -25% (NY/ICE December futures), corn fell -19% (Chicago Board of Trade, December contract), soybeans fell -17% (Chicago Board of Trade, November contract), wheat fell -25% (Chicago Board of Trade, December contract), copper fell -20% (London Metal Exchange, nearby), and Brent crude oil fell -12% (ICE, nearby).

The breadth of losses throughout the commodity sector suggests a sea change in investor sentiment for the entire category.  The effects of inflation, the withdrawal of stimulus, rising interest rates, and concerns about a possible recession could all be reasons explaining a reversal of speculative bets, and all could be contributors to the losses.  While the macroeconomic environment can be expected to continue to weigh on prices, there are also supportive forces for the market that are specific to cotton.

The current USDA forecast for U.S. cotton production is 15.5 million bales, and it may get smaller over time because of the severe drought in West Texas.  The current harvest figure is two million bales lower than the 2021/22 number and is equal to the five-year average for U.S. cotton exports (2017/18-2021/22).  On top of exports, the U.S. will need to supply domestic mills with 2.5 million bales.  The last time the U.S. had a severely drought-impacted crop (2020/21), the harvest was only 14.6 million bales.  In that crop year, the U.S. was able to export more than it grew because it had accumulated stocks in the previous year.  The U.S. is coming into the 2022/23 crop year with low stocks.  This suggests U.S. shipments may have been rationed.  Since the U.S. is the world’s largest exporter, this may lend some support to prices internationally.