Moving into Uncharted Territory
February 8, 2011 Presentations I gave at international gatherings during the autumn of 2010 referred to the cotton market being on the verge of entering uncharted territory. There was no particular insight in making that very obvious statement. However, the past few months have certainly proved more unpredictable, more volatile and more uncertain than even the most perceptive market observers could have foreseen.
The Cotlook A Index, a barometer of world cotton price movements, amply demonstrates the rapidity and extent of the changes in market values. On Aug. 1, 2010, its value stood at $0.863 per lb. but a month later, it had risen to $0.941. On Oct. 11, the A Index surpassed its previous highest level ($1.194 on April 26, 1995), and then made another huge leap in a very short time period, to more than $1.70 before a dramatic reversal set in.
Numerous factors contributed to the price advance, but the principal cause was simply too little cotton available to meet demand, especially from China.
A volatile market, together with the actions taken by some governments (admittedly with a view to protecting their local industry) have brought increased focus on contractual performance, both at the initial supply stage of the cotton chain and at the trader/mill level.
The International Cotton Association (ICA) is at the sharp end of the performance issue because it maintains and supports the trading rules and bylaws predominantly used in contracting cotton across international boundaries. History shows that an increased number of disputes, and consequently, arbitrations, is the inevitable result of market instability.
As we have all experienced in our private businesses, the pattern of world trade in cotton is very different today. China is the dominant import market, followed by Bangladesh, and India is now a major contributor to the world exportable supply rather than a net importer. Today, Asia is our focus. In 2010, a successful meeting was held in Singapore and 2011 will see a similar event take place in Dubai. This focus is absolutely not to the disregard of other parts of the cotton world, where our rules and bylaws are equally relevant, and from where participation in our affairs is both welcomed and vital.
Change has run throughout the organization, with broader international participation at all levels, from individual committees to the Board of Directors. In 2010, of the ICA’s 22 directors, eight were from Asia, four each from the UK and USA, three from Europe, two from Brazil and one from Africa. In 2011, the diversity of the Board is expected to change further.
The number of qualified arbitrators, located around the world, has increased. During 2011, the Association will commence a second phase of arbitrator training, to raise standards further. It is emphasized that although our rules are based on English law, and England is the seat of our arbitral authority, arbitration under our rules can take place in any location.
In addition, in the spring of 2011 we will re-launch our annual training seminar Complete Cotton, for up-and-coming cotton professionals from all walks of the business, and work with other organizations to ensure the availability of the best possible education specific to cotton.
The ICA has become more proactive about its message–observing sanctity of contract and maintaining good trading order in raw cotton–by visiting more markets, engaging with more people.
Consolidation in the cotton trade requires, more than ever, associations to work together. The ICA has been proactive in engaging with other associations, both peer to peer and through its proposed new membership structure for 2011. Industry associations will themselves be able to become affiliated, thus demonstrating support for the ICA’s principles and bringing benefits to their own members. The changed membership structure is designed to encourage more diversity within the ICA by broadening our membership base still further, thus reinforcing its role within the market and providing a single impartial voice for both buyers and sellers.
As the industry seeks to chart a way forward in these very challenging times, a modern, fit for purpose ICA is ready and eager to play its part in the new game as it unfolds.
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