The Rupp Report: Cotton Is Still The Focus

The Rupp Report is the outcome of all kinds of information, trends, gossip and even the Bush
Telegraph. Every time, dear reader, when you have the latest Rupp Report on your screen, the next
one is already in the pipeline, at least in the writer’s head. But sometimes the news is even
outrun by events. This is happening at the moment with cotton, the premium natural fiber of the

After being on the road for the last two weeks in Western Europe, the intention was to inform
you in this week’s report about the upswing of the textile industry in general and textile
machinery in particular. All companies visited report only one “problem,” if any: supply. Owing to
the well-known problems in the last 18 to 24 months, most manufacturers reduced their output and so
did their suppliers. However, as mentioned before, cotton is still the talk of the town, and there
is a lot of new information almost every day. Therefore, the Rupp Report will report the good
company news from next week on.

Unstoppable Prices

Among others, an ever-important source of cotton information is the Bremen Cotton Exchange,
which reports that the “upsurge of the price indices has appeared to be unstoppable for months.”
One has to know that the Bremen CIF Index, which was about 80 cents per pound at the beginning of
2010, was fixed at 168.50 cents per pound on Nov. 5, 2010. Those “limit ups” — having been
registered regularly at the New York Futures Market for quite some time — as well as the movements
of the two price indices — Cotlook A and Bremen CIF — cannot be justified by fundamental data

During the first week of November, the Cotlook A Index increased between 150 and 540 points;
the price formation was shaped by a “dramatic upswing.” Looking back, it becomes obvious that for
several decades, cotton prices have tended to remain on a very low level or to drop. However, it
took 30 years — until June 2010 — for them to catch up with the price level of 1980.

Many Reasons

The fundamental data that caused prices to increase continually for several months have been
dominated by the lack of available raw material, as the Rupp Report has reported over several
months. Causes include the flood catastrophe in Pakistan, which ranks fourth among the global
cotton producers; crop expectations of the cotton giant China revised downwards; as well as export
restrictions in India. Furthermore, global stocks were reduced by 25 percent to 8.9 million metric
tons during the 2009-10 season. Such a low level has not prevailed during the last seven seasons.
On the other hand, the demand for cotton has grown by 5 percent.

According to the Bremen Cotton Exchange, there are three major leading indices for cotton

  1. The Cotlook A Index Far East, published daily by Cotlook Ltd. This index is a price average of
    varieties traded in the Far East.
  2. The Bremen Cotton Exchange’s Bremen CIF Index, also published daily, and the only index based
    on European offers.
  3. The quotes of the IntercontinentalExchange (ICE) of New York. These quotes do not reflect the
    physical cotton business, but, rather, futures trading, and they can lead possibly to quite
    significant volatility.

ITMF Letter

On November 10, the International Textile Manufacturers Federation (ITMF) wrote a letter to
India’s Minister of Textiles Thiru D. Maran, to express the concern of the global textile industry
about soaring cotton prices and its negative impact on the international cotton textile industry.
New ITMF President Bashir H. Ali Mohammad explained in this letter the reasons and the outcome of
soaring cotton prices.

However, the problem is not only market demand, but also governmental actions. ITMF writes:
“Government interventions that are undermining the sanctity of contract are distorting the
international cotton and textile markets and are therefore affecting negatively large parts of the
global cotton and textile industry.” ITMF therefore “urges the Indian government to honor the
sanctity of contract and to refrain from unpredictable and unlawful interventions in the
international cotton markets by restricting cotton exports from India that have already been


Many professionals at ITMF’s recent conference in São Paulo, Brazil, mentioned the fact that
it’s not the price as such, but the volatility of the markets that makes the markets unpredictable
and shaky. The extreme upward price trend that has not been compatible with the fundamental data is
the dominating factor. Many cotton traders mentioned in São Paulo that the fulfillment of contracts
might be a risk and could end up in big losses. On the other side, there is fear of contract

However, experts at the Bremen Cotton Exchange say product perspectives for the upcoming
season are positive: a significant rise is expected as cotton production has become more attractive
for numerous countries thanks to the price situation. Yet, the current supply situation is
extremely tight. Again, time will tell, and the Rupp Report will keep you informed about the latest

November 17, 2010