Amid rising oil prices driven by conflict involving Iran, the appeal of natural fibers is increasing relative to increasingly expensive synthetic fibers. Asset management institutions have shifted to a net bullish stance on cotton. Data released by the U.S. Commodity Futures Trading Commission on Friday shows that for the week ending April 14, long positions in New York cotton futures exceeded short positions by 16,825 contracts. This reverses the net short position that had persisted since April 2024.
According to Bin Hui Ong, a commodities analyst at BMI, a Fitch Solutions company, the conflict involving the U.S. and Israel against Iran has driven up energy prices, subsequently increasing the cost of petroleum-based synthetic fibers like polyester and nylon. This change is significantly enhancing cotton's competitiveness. The benchmark cotton futures have risen for six consecutive weeks. Asian textile mills are highly dependent on raw materials for synthetic fibers from the Gulf region, and rising costs may prompt these manufacturers to adjust their blend ratios, increasing the proportion of cotton used.
Supply-side risks are also contributing to rising cotton prices: the conflict has pushed fertilizer prices higher, potentially discouraging planting intentions for the next season and leading to production cuts. Analysis firm Cotlook predicted in March that the global cotton market would face a supply deficit of approximately 295,000 metric tons for the 2026/27 season. Furthermore, persistent drought in major U.S. cotton-growing regions is adding uncertainty to the nation's output.
Since the outbreak of the conflict, cotton futures have accumulated a gain of about 22%, with prices approaching a two-year high. Ong believes that even if crude oil prices retreat, the upward trend for cotton could continue. "Even if oil price-related supportive factors fade, we expect cotton prices to remain well-supported, as the optimistic supply-side expectations that suppressed prices during 2025 are continuously diminishing," she noted. However, she also pointed out that ample buffer stocks might limit the upside potential for cotton prices.
CFTC data indicates that this new net long position is the most bullish level in approximately two years, driven by pure long positions rising to 56,736 contracts, while short positions fell to a 23-month low.
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