The year 2022 seems endless, yet there are still three months to go before we can see if 2023 will mark a break in the chaos of the world.
Every day brings its share of disasters, wars, revolutions and disorders. In such an environment, how can one keep one's cool in economic matters?
I had compared the 2008 crisis to the 1929 crisis, the analogy to say that 2022 is similar to 1939 is not so far off. All the ingredients seem to be in place for a major explosion while hoping that the lessons of history will have borne fruit.
The economic climate, which has been severely damaged by the energy crisis, is weighing on all the equity, technology and commodity markets, as is the case with OPEC, which is preparing to lower its production... All category interests are now negotiable according to the tensions. In Saudi Arabia Mohamed Ben Salman was appointed Prime Minister before becoming King and the Maduro government in Venezuela was able to negotiate the release of part of its clan from American jails...
In the US, the uninterrupted rise of the dollar in the wake of interest rates coupled with the definition of a 2% inflation target had the effect of a bomb as the rest of the economies need a break.
In this climate, the cotton world has sunk into a slump from which nothing seems to be able to emerge; production continues to be revised downwards, hurricanes continue to blow across the fields, but this is not enough to make the market rise again.
The spinning mills are not buying, so as not to be caught in the same trap as during the COVID period with its share of closures and cancellations of orders for manufactured products. But production costs are also at stake, as the weight of the Kwh price weighs on the operating accounts. The spectre of wage renegotiations to keep up with the rise in daily prices ultimately dissuades the most daring.
In this uncertain environment all the major textile brands are limiting orders and trying to manage stocks as tightly as possible. The recent bankruptcies in this sector do not encourage optimism either.
For producers, the problem is the same: can production be relaunched for the next campaign in this context, hoping for a strong recovery like the one experienced after COVID? Nothing is less certain, as production costs have increased and there is no indication that input prices will fall in the immediate future as they are closely linked to the maintenance of sanctions and the price of gas.
Global demand for cotton has suddenly dried up, and it is impossible to say when it will resume. The fundamentals will be completely off the table until the economic sky clears.
Source: Mambo