By  on September 13, 2005

BURGENSTOCK, Switzerland — The recent spike in oil prices has put man-made fibers manufactured from oil derivatives at a cost disadvantage and has boosted the attractiveness of natural fibers such as cotton, a leading commodity expert said.

"I see the use of natural fibers continuing," said Joseph O'Neill, senior vice president of the New York Board of Trade. "I think most people like natural fibers, so I think it will continue, with the price of the competitors not staying stagnant, as a lot of these competitive products are made from crude oil derivatives."

O'Neill said demand from China and India, particularly, is driving the current global cotton market.

"We're going to look for China to produce around 28 million bales of cotton and consume around 35 to 36 million bales, and India to consume around 14 million bales of cotton, but they produce a little less," he said in an interview while attending an international futures market conference here.

The NYBOT executive said the U.S. is expected to grow more than 20 million bales, mostly for export, because the country should only consume around six million bales, and worldwide production this year is to come in around 112 million bales.

"The U.S. has always been the residual supplier," he said. "Production is relatively subject to weather conditions, how the farmer feels ... there's a lot of variables in production, probably not as many in consumption."

From 1984 to 1998, O'Neill was president of the New York Cotton Exchange. Asked about the likely impact on cotton of full liberalization of the global textiles and apparel market in 2008, with the termination of the special World Trade Organization China textiles safeguards measures, he said: "As some of the agreements run out, it will not stop China. They will sell them all over the place. They will sell them in the U.S., but I think we will continue to sell in the U.S. Demand for cotton is going to be quite insatiable."

However, he said as pressure on agriculture mounts in China to make more land available for foodstuffs and for the industry to move away from cotton, worldwide demand for cotton will increase. O'Neill also feels that the implementation of the WTO dispute panel ruling — following a complaint filed by Brazil, which found that many U.S. programs were breaching global trade rules and called for an end to $2 billion in subsidies — will not have much of an impact."I think U.S. cotton farmers will grow cotton and I don't see a big decrease in acreage from U.S. cotton producers whether the subsidies are there or not," he said.

O'Neill was also skeptical whether the removal of the subsidies will translate into a 13 to 15 percent increase in world cotton prices as suggested by some expert studies.

"That's the argument that was used in the WTO case," he said. "They're assuming that the U.S. cotton producers will reduce production, which then will make the price of cotton go up. Who knows what's going to happen? I don't have a crystal ball and I don't think anyone has a crystal ball."

He noted the current world cotton price of around 50 to 52 cents a pound, although 20 cents higher than 2001, is not high and that, when the price of cotton started to rise in 2000 and 2001, "It started out at 65 cents and everybody thought it was going to 95 cents, and instead it went to the 30s," O'Neill said.

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