BAKU, Azerbaijan, August 11. Industrial demand for cotton, natural rubber, and lumber is expected to decline amid crumbling global economic growth, which is expected to slow to 2.5 percent this year, Trend reports, citing Capital Economics, UK-based research and consulting company.
Namely, demand for cotton tends to be recession-sensitive, as lower real disposable incomes and consumer confidence affect demand for clothing.
“Our downbeat view on real consumer spending is a big driver of our forecast for recession in the euro-zone and UK, which will weigh on cotton consumption there. However, the price of cotton is also affected by the price of oil, as it drives the prices of most synthetic fabric substitutes for cotton. Our forecast for oil prices to fall back gradually... suggests that the fall in the price of cotton could be relatively small and gradual,” the report said.
Furthermore, Capital Economics expects the Fed to start cutting rates at the end of 2023, which should lead to a slight drop in US Treasury bond yields and an increase in US lumber prices.
“The price of US lumber has been battered by the Fed’s hawkish shift this year. And short bouts of more dovish expectations were due to recession fears, which are also negative for lumber demand. Ultimately, we expect that US housing starts will end the year at 850,000 annualized, which points to a lumber price of $450 per 1,000 board feet,” the report said.
“Meanwhile, demand for natural rubber (NR) has been subdued due to the sluggish recovery in auto production since 2020 owing to component supply shortages. There are already signs that these supply bottlenecks are easing, but weaker industrial activity will limit the recovery ahead. But, again, the fall in the price of NR is likely to be small given that its synthetic alternatives are also petroleum-based,” Capital Economics added.
“That said, high oil prices will offer some support to cotton and natural rubber prices, and our expectation for rate cuts in the US in late 2023 could boost the price of US lumber,” the report said.
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