Commodities

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Record Cotton Production Pushes Prices Lower
Wednesday, August 10, 2011
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World cotton production in 2011 is now expected to exceed more than 27 million tons, according RISI, resulting in lower prices in the dissolving pulp market.

RISI, a leading information provider for the global forest products industry, reports that the 27-million-ton haul represents a 5 million ton increase from the low point in 2009.

"This has impacted the record $5100/tonne A-index cotton price reached in March this year contributing to a steep decline to $3600 in May, before stabilizing in June," RISI officials said in a statement. "Meanwhile, spot prices have continued to wane. Current spot prices and year-end futures prices indicate that A-grade cotton prices in the fourth quarter will drop even further."

World dissolving pulp demand reached 5.1 million tons in 2010 -- an increase of 16% over the previous year when world demand for all textile fibers jumped 12%. In the second quarter of 2011, eleven new dissolving pulp projects were announced, totaling an additional 1.2 million tonnes of capacity. Half of this new capacity comes from one mill: the new Zhanjiang Chenming operation in southern China.

"Our latest listing of announced capacity expansions shows that 1.4 million tonnes of new dissolving pulp capacity will start by the end of 2011, which is 200,000 tonnes more than what we had calculated in last quarter's monitor," Rod Young,  RISI's chief economic advisor, said in the report. "The weakening of the world dissolving pulp market over the course of the second quarter appears to have caught producers by surprise and there were reports of excess inventories throughout the supply chain by the latter part of the second quarter."

Overcapacity and the plunge in prices will mean some announced projects will be delayed or even cancelled and are assumed to have an even more pronounced negative effect on the viability of projects announced for 2013. Also, low prices will continue to keep swing mill capacity mainly in the paper grade market and begin to pressurize older, smaller mills to shut existing capacity.

 

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