1.4.5-The World Cotton Market-The dual system

Cotton Guide > Chapter 1 > The Cotlook Indices > The dual system

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Foreword

Contributors

Introduction

Chapter 1

Overview

Production

Production trends

Africa in perspective

Trends in mill use of fibre

Expansion of retail cotton use

Retail cotton consumption

Mill consumption

Inter-fibre competition

Long term projections for textile fibre consumption

Trade

Biotech cotton: world textile trade

Government measures

The importance of cotton in world trade

Cotton Prices

Prices measured at many levels

Influence of time on prices

Influence of location and quality on prices

Cotton and competing crop prices

Structural changes leading to lower prices

Technology

Polyester

Prices of cotton yarn

Retail prices for clothes

Futures markets

The Cotlook Indices

A brief description

Daily quotations

The Cotlook A Index

Transition to an Asian basis

The dual system

Uses of the cotlook indices

Cotton in the Doha Development Agenda

Chapter 2

Impact of varieties and production practices on cotton quality

Varieties

Harvesting

Seed cotton storage and handling

Cotton ginning machinery

Seed cotton unloading

Feed control

Drying

Seed cotton cleaning

Gin stands

Roller-type gins

Lint cleaners

Moisture restoration

Packaging lint cotton

Effect of gin machinery on cotton quality

The impact of cotton fibre properties on textile processing performance, quality and costs

Micronaire

Maturity

Fineness

Length and length uniformity

Strength

Elongation

Colour

Preparation

Neps

Trash (non-lint) content

Wax content

Friction

Ultra-violet fluorescence

Dyeability

Stickiness

Crimp and bulk

Stiffness, elasticity, modulus and work-to-break

Neps and short fibres

Nature of neps and short fibres

Measurement of neps and short fibres

Conclusion

Extraneous contamination in cotton

What is the acceptable contamination level for the end-user of yarn and cloth?

Steps towards minimizing contamination

What proportions of bales from different origins are contaminated?

Fibrous and non-fibrous extraneous contamination in cotton bales

Electronic gadgets in the spinning process for removal of contamination

Effect of the initial level of fibrous contamination and residual level in yarn

Best solution: Solve the contamination problem at the origin

Conclusion

Classing and grading

Cotton classification

Manual grading of cotton

Grade standards

Use of instrumentation in cotton classification

Harmonization of rapid machine testing of fibre quality

Understanding HVI and how to make it serve a global market

Implications for national HVI systems

Conclusion

Cotton bale packaging

Dimensions and density

Bale strapping or banding materials

Bale cover materials

Labelling

Textile processing

Yarn formation

Fabric formation

Chapter 3

Contracts

Standard contractual terms

Main trade (logistical) terms and parties’ obligations

Documentation

Claims

Scope and validity of an offer or bid

Arbitration

General principles and aims of arbitration

Disputes addressed by ICA arbitration

The commencement of arbitration and formalities

Appointment of arbitrators

Conducting the arbitration

The arbitration award

Appeal against an arbitration award

Failure to comply with an award

Promotion of good trading practice

The European Cotton Rules

Documentation (‘back office’)

Letters of credit

The bill of lading

Certificates of origin

Insurance certificates

Other certificates

Missing and incorrect documents

Electronic paperwork

Paperwork-What paperwork?

Why do we need this amount of paper?

How can electronic paperwork assist me?

The electronic revolution

How secure is electronic paperwork?

Freight

Controlling

Pre-shipment

Who appoints the controller?

ICA Rules and Bylaws

Other pre-shipment services

Post-landed weighing

Bale by bale weighing

Weighbridge weighing

Taring

Arbitration sampling, micronaire sampling and sampling for strenght

The role of banks in cotton export finance

Transactional finance

Advance payments or export pre-finance

Advance payment guarantee

Red clause letter of credit

Warehouse receipt systems

What are warehouse receipt systems?

Insurance in an uncertain world

Risk

Indemnity

Utmost good faith

Types of insurance cover to protect your business

When do I become liable? The attachment and termination of risk

Other important considerations

Risk management-A cotton supply chain manager’s perspective

Risk

Risk management framework

Risk governance

Risk measurement

Price charts-Cotlook A Index and New York Cotton Futures

Stress testing

Back testing

Counterparty risk

Operational risk – mapping

Risk culture

Cotton promotion

The importance of cotton promotion

The cost of cotton promotion

Factors that can affect promotion

Annex – ICA model contract

Chapter 4

The role of merchants in cotton exports

The changing role of cotton merchants

Cotton exports and Internet trading

Cotton exports and Internet auctions: a case study

The future

Conclusion

Cotton futures and options – ICE Futures U.S.

Two markets

Price risk

Price quality

Leverage

Organization of a futures market

The former NYBOT and now ICE Futures U.S. cotton marketplace

Cotton forward contracts

Futures and options contracts

The fundamentals of cotton supply and demand

Electronic trading of futures contracts

Other futures markets

Brazil

China

India

Trading in futures

Overview

Technical analysis of futures markets

Hedging and market systems

Risk considerations

Hedging with futures contracts

Hedging with options

Trading physicals at a price to be fixed

Guaranteed minimum price contracts

The purpose

When to use the guaranteed minimum price contract

The advantages of the guaranteed minimum price contract

The disadvantages of the guaranteed minimum price contract

The workings of a guaranteed minimum price contract

How to value insurance premium

A practical example

Conclusion

Chapter 5

Types of cotton

Price differentials

Conventional cotton

Organic cotton

Biotech cotton

Coloured cotton

Extra long staple cotton

ELS cotton production

ELS cotton exports

ELS cotton flourishes in niche markets

Organic cotton: an opportunity for trade

Organic cotton

‘Fair trade’ cotton

Organic and fair trade

The organic cotton market

Geographical markets and large brands

Future development of the market

Chapter 6

Bangladesh

The structure and characteristics of the domestic cotton market

What kind of cotton is supplied from abroad, and from which countries?

Cotton qualities supplied domestically

Specific cotton quality requirements of the domestic textile industry

Cotton import procedures in Bangladesh

Recommendations for LDC cotton exporters on increasing exports to Bangladesh

China

The structure and characteristics of the domestic cotton market: a macro view

Quota system and management of China’s cotton industry

Non-tariff requirements in the domestic market

Expected market developments

The domestic market: a micro view

Possible niche markets and product groups to be targeted

Recommendations for LDC cotton exporters for penetrating the Chinese market

Detailed rules for quota management of cotton imports in China

Chronology of policies and events related to China’s cotton import quota

India

The domestic market

Supply and demand in the national market

Non-tariff requirements in the domestic market

Expected market developments

The domestic market: a micro view

Large national cotton consumers

Possible niche markets and product groups to be targeted

Existing national support schemes

Recommendations for LDC cotton exporters on increasing exports to India

Indonesia

The Indonesian textile industry: a macro view

Supply and demand in the national market

Imports of cotton into Indonesia

Cotton import procedures in Indonesia

Selling practices

Recommendations for LDC cotton exporters on increasing exports to Indonesia

Pakistan

The structure and characteristics of the domestic cotton market

An analysis of the tariff structure of imports

Non-tariff requirements in the domestic market

Expected market developments

The domestic market: a micro view

Preferences of large national cotton consumers

Local spinners’ recommendations on how to penetrate the market

Organic cotton

Recommendations for LDC cotton exporters on increasing exports to Pakistan

South Africa

The structure and characteristics of the domestic market

Tariff structures

Non-tariff requirements in the domestic cotton market

Expected market developments

The domestic market: a micro view

Case studies of large national cotton consumers

Possible niche markets and product groups

Existing national support schemes

Recommendations for LDC cotton exporters

Thailand

The structure and characteristic of the Thai cotton market: a macro view

Tariff and non-tariff requirements in the domestic market

Expected market developments

Case studies of large national cotton consumers

In-depth interviews on penetrating the Thai cotton market

Turkey

The structure and characteristics of the domestic cotton market: a macro view

Analysis of the tariff structure of imports

Non-tariff requirements in the domestic cotton market

Expected market developments: demand and supply forecasts and future market prospects

The domestic market: a micro view

Case study of large national cotton consumers

Possible niche markets and product groups to be targeted

Existing national support schemes that could be utilized to assist cotton-exporting LDCs to penetrate the Turkish market

Recommendations to LDC cotton exporters for promoting exports to Turkey

Classification parameters

Vietnam

The structure and characteristics of the domestic market: a macro view

Market size and consumption pattern

Supply

Imports

Tariff structure of imports

Non-tariff requirements

Exports and imports under sale and purchase contract

Expected market developments

The domestic market: a micro view

Case studies of large national cotton companies

Possible niche markets and product groups to be targeted

Existing national support schemes that could be utilized to assist cotton exporters from least developed countries (LDCs)

Recommendations for cotton exporters from LDCs on increasing exports to Viet Nam

Useful addresses

Bangladesh

China

India

Pakistan

Thailand

Turkey

South Africa

Viet Nam

Acknowledgements

Quick links

Abbreviations

International Cotton Associations

Conversion Factors

Useful websites

Textiles and clothing

A4Trade Global Review: case story

Connecting Industry to the Market

Questionnaire

The Role of Women in Cotton

The dual system
Chapter 1 - The world cotton market - The Cotlook Indices

In arithmetical terms, the manner in the indices are calculated has remained unaltered since their introduction: each is a simple average of the cheapest growths (five in the case of the A Index and A (NE) Index, three in the case of the B Index) in its respective selection.

However, since 1988, Cotlook has operated a dual index system. Under this system, two sets of indices (one reflecting quotations of the current season, the other forward quotations, for the next season) run concurrently from the establishment of the forward indices until the end of the marketing season in question on the last business day of July. At that time, the existing current indices disappear, and the forward indices are transformed into the new current indices. Those indices alone will be published until early the following year.

As soon after the turn of the year as is practicable, a forward value is established for each growth, for shipment no earlier than October/November of the coming cotton season. In deciding when to introduce each forward quotation, Cotlook is influenced only by the market evidence available, and the degree of confidence that can therefore be placed on its validity. When sufficient forward values have been introduced, they are consolidated into the A, A (NE) and B (NE) Indices. No specific date is set for this step. Forward indices are usually introduced in March, but occasionally as early as February and, in the case of the B Index, as late as July. October/November (rather than August/September) is chosen as the initial shipment period, since it is during these months that the Northern Belt crops begin to move in volume. Southern Belt new crop values are ignored for index calculation purposes before 1 January, whether they appear on Cotlook’s price lists or not (see figure 1.34).

Source: Cotlook

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ITC's role in Africa
On-going projects
Header - Cotton [all sub-pages]
Foreword
Cotton Exporter's Guide
Contributors
Introduction
Chapter 1 - The World Cotton Market
1.1-The World Cotton Market-Overview
1.1.1-The World Cotton Market-Production