Growing Middle Classes Buoy Prices For Egyptian ELS
August 22, 2013 Rising food prices are putting pressure on any crop they compete with, no matter how “high-end” that crop might be. Egyptian growers aren’t exempt from that pressure, despite the fact that their country is considered one of the most important sources of extra-long staple (ELS) cotton in the world.
As a luxury fiber, consumer demand for textile products made from Egyptian ELS is more sensitive to global economic forces, which have been in flux in recent years. While some traditionally rich consumer markets are faltering, new ones are growing in developing countries, and the rise and fall of those two groups will go a long way toward determining the short-term future of long- and extra-long-staple cotton.
To get a better overview of the ELS market in Egypt, Cotton International turned to Dr. Mahmoud El Bagoury, chairman of the Cotton Arbitration and Testing General Organization (CATGO).
The Rollercoaster of ELS Prices
More than two dozen countries import cotton from Egypt, including China, India, Pakistan, Turkey, Brazil, Italy, Germany, South Korea, Japan and the United States. Of that group, the countries that are consistently the top buyers are China, India and Pakistan, and all of them have been the top buyers for a long time.
For 2012/2013, India will be the largest buyer of Egyptian ELS, with Pakistan taking second place.
“By taking a look at Egypt’s contribution in the global production of the long- and extra-long-staple cotton, we find out that it has ranged between 20% and 40% of the global ELS supply during the last 10 years, with an average of 32.8%,” Dr. El Bagoury says. “More than half of the total Egyptian long- and extra-long-staple cotton is exported to consuming countries including China, India and Pakistan.”
The volatility of cotton prices in recent years has affected the ELS market, but has it been hit harder than regular staple cotton? “The prices of the long- and extra-long-staple cotton have improved by the end of this season. Giza 86 recorded a price increase of anywhere from 14% to 17% during this past season, depending on the grade and the quality.
“Early in the season, Giza 88 dropped a couple of percentage points for a few weeks, but it has since recovered, and is now showing gains of 9% to 11% for the year,” Dr. El Bagoury says.
Next season, Egypt intends to dedicate a space of about 336,00 hectares to ELS cotton, which will result in a total production of about 247.5 million pounds of cotton lint. Based on historical export numbers, that means Egypt likely will export about 148.5 million pounds of lint cotton, and the total could reach as high as 156 million pounds, Dr. El Bagoury says.
While ELS plantings in Egypt remain strong, and prices for the Giza 86 and 88 varieties are faring well, the long-term outlook depends on outside factors.
Some of those factors are negative, such as the continuing global economic slowdown – particularly in prime consumer markets like the United States and Europe. There’s no question that the difficult and uncertain financial outlook has resulted in reduced consumer purchasing.
On the other hand, there are positive developments that offset the economic downturn, at least to some degree. The brightest of those developments includes the rapidly growing middle classes in developing markets such as India and China. The influx of capital and higher disposable incomes are creating a new generation of consumers who now have the additional money to buy higher-end products – like textile products made with Egyptian ELS cotton.
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