India’s Cotton Route to counter China’s Silk Route? The rivalry between the two Asian giants, China and India, continues in ancient trade routes that are being revived: China with its famous Silk Road and India with its Cotton Route. These two major economic powers are strengthening their presence in the Indian Ocean. Through the Silk Road strategy, China is seeking to build an economic belt, covering countries along both the sea path and land path. China has increased its presence in ports near Sri Lanka, Bangladesh and Pakistan and India suspects that the presence of the Chinese in these ports is not only for commercial but also for military purposes. New Delhi is now looking to counter Beijing influence in the Indian Ocean region by reviving the Cotton Route to boost relations and exploit trade potential with nations across the Indian Ocean region. The Indian Ocean presents itself as a vital transit route between the Pacific region, Africa and Europe. It carries one half of world’s container shipments, one-third of the bulk cargo traffic and two-third of the oil shipments according to Foreign Minister Sushma Swaraj. The control of flows is a sought objective. The objectives of these countries would diverge then on the question of the free traffic (circulation) for which Chinese would try to hinder and Indians to defended. Source: Shipping density data adapted from National Center for Ecological Analysis and Synthesis, A Global Map of Human Impacts to Marine Ecosystems. 2015/16 : Consumption to exceed production Source : USDA In a recent projection, the USDA estimates that world consumption will exceed production by 3 million bales (~2.58% of estimated world consumption) for 2015/2016. Stocks, however, will stay around record highs, as they are estimated to drop to 107 million bales (~92% of estimated world consumption). Projected stocks can supply close to a year of consumption. A bale weights 480 lb. The Cotlook A-index is an average of the five cheapest quotations in a list of nineteen growths: US farmers to decrease planted area Source : USDA/NASS farm price Arizona and California data have not been disclosed to protect individual operations. With this drop in price received, and the estimated average farm price for the next season lowered to 60.5 ₵/lb, the planted area for 2015/16 is expected to decrease by 12%. While internal use of cotton is expected to grow, US exports of cotton are expected to decrease. The ending stocks for 2015/16 are projected nearly unchanged. In January 2015, the closest future price was between 58.25 and 61.35 ₵/lb. The farm price is about the same for nearly all the regions. Delivery points for the ICE contract, being near the farms, render the basis really tight. http://www.mapcustomizer.com/map/Delivery%20points%20for%20futures %20contract Worldwide, Chinese stocks are taking most of the hit, whilst production in other countries will decline and mill use increase. This is due to a low cotton price. The cotton #2 market price The average spot price in US cents per Pound for Upland cotton (color 41, leaf 4, staple 34)as of Thursday, March 26, 2015 is 62.90 US cents per pound according to www.nasdaq.com. As we know, there is a high volatility in the cotton price. At the beginning of March the price has fall down by more than 5 US cents per pound (from 1st March to 17th March), and then increased back from 60 US cents per pound to 64 US cents per pound. From 23th of March the price is decreasing again, and we think that the price will keep decreasing until the end of March because of the end of the harvest season who took place this month. Forward Curve Source : theICE As we finished the harvest season this month, a contango is logical. Stocks are high as is the incentive to store. http://usda.mannlib.cornell.edu/usda/current/AgriPric/AgriPric-02-27-2015.pdf https://www.theice.com/products/254/Cotton-No-2-Futures/data http://www.fas.usda.gov/commodities/cotton http://www.cotlook.com/information/the-cotlook-indices-an-explanation/ http://www.chinatopix.com/articles/43424/20150323/india-s-cotton-route-aims-rival-chinasilk-road.htm#ixzz3VKk4PAqy http://www.oneindia.com/feature/narendra-modi-s-indian-ocean-trip-cotton-route-to-counterchina-s-silk-route-1681223.html http://www.financialexpress.com/article/markets/commodities/india-mulls-reviving-cottonroute-for-ties/55502/ http://economictimes.indiatimes.com/news/politics-and-nation/to-counter-chinas-silk-roadindia-is-working-on-cotton-route/articleshow/46655130.cms http://www.diploweb.com/Geopolitique-de-l-Ocean-indien.html http://thediplomat.com/2011/03/why-the-indian-ocean-matters/