Trade war, geopolitical tension and eco fibers: raw materials accentuate its volatility

The global market of raw materials accentuates its volatility. Trade war between United States and China and geopolitical tensions surrounding the price of petroleum, adds an extra dose of uncertainty to the prices of the two main materials that supply the fashion industry: cotton and polyester.

At the beginning of June, the Organization of the Petroleum Exporting Countries (OPEC) agreed to make cuts to the petroleum supply until March 2020 with previsions to rise the price in a context of a weakening global economy and a rise in the offer. Since the arrival of Donald Trump to the White House, United States has intensified its production, overcoming Russia and Saudi Arabia.

But in the petroleum market, anything can happen in the following months, since countries like United States (not a part of the OPEC), Saudi Arabia, Russia, Venezuela and Iran are already in conflict. Any false move could generate an increase or lowering in the prices.

In the petroleum market, raw material like polyester is surrounded by uncertainty due to the tension between its two main manufacturers  

For the moment, symptoms of global economic slowdown are already showing, for now they are pressuring the downfall of the price of petroleum, polyester's main raw material, the key fiber in the fashion industry.

Cotton, on the other hand, is in the eye of the storm because of the commercial tension between its two main actors: China, the main consumer and second biggest producer and United States, its main exporter. In fact, trade war between these countries has hit straight into the cottons trading market, with tariffs that didn’t exist one year ago.

However, the price of cotton is stable, considering the circumstances, due to the consumption increase from other emerging economies in Asia, specially in production. To the period ended 31^st of June, is estimated that the production arrived at 25.7 million tons, and that consumption rise to 26.7 million tons, according to the International Cotton Advisory Committee (Icac) published in July.

Cotton prices stay stable during trade war due to the rise in consumption in emerging economies

However, previsions go torwards expanding stocks, specially outside of China. The Asian giant, that in the campaign of 2014-2015 reached 14.1 million tons, ended last season 2018-2019 with 8.2 million tons. The rest of the countries added 8.8 million tons four campaigns ago and in the last one they accumulated 10.5 million.

In this context, prices of cotton continue to go down, arriving at 76 cents of dollar per pound. On the other hand, its also expected to continue on the low due to the crop subsidy program released by Trump’s administration during the second half of 2019, with a budget of 16 million dollars.

The new sustainability wave starts to play a role in the global market of textile fibers and the arrival of a new generation to the market. For the moment, its participation is circumstantial, but the forecast is for it to rise.

Organic cotton and BCI platform cotton, stay away from the prices and tension of the global market. Talking about synthetic fibers (derivate from petroleum),  the ones coming from PET bottles and other plastic waste start to gain weight.