Since July 2022, global inflation has continued to soar. The Federal Reserve raised interest rates four times during the year and issued signals of slowdown in interest rate hikes to appease the market. U.S. stock and commodity prices showed signs of rebound after falling sharply. At present, expectations for an increase in cotton production in the northern hemisphere are getting stronger, and against the backdrop of drastic changes in the external environment, what will be the next market trend?
Part One Market Review
1. The decline in international cotton prices has slowed down and is still in a period of oscillation and instability.
In June 2022, the U.S. CPI soared to 9.1%, setting a new high in 41 years. Concerns about the U.S. economic recession have intensified, and market caution and pessimism are still spreading; after the international cotton price experienced continuous plummets, some short funds began to take profits. In July, The decline in international cotton prices has slowed down. In late July, the US stock index and oil prices rebounded. Market panic was also released, and international cotton prices rose slightly. As of July 25, 2022, the settlement price of the main ICE cotton futures contract was 91.06 cents/pound, down 7.87% from the end of June; the International Cotton Index (M), which represents the average CIF price of imported cotton in China’s main port, was 116.17 cents/pound. , a decrease of 20.11% from the end of June, and the import cost in RMB with a 1% tariff discount is 19,037 yuan/ton (excluding port miscellaneous goods and freight), a decrease of 19.99% from the end of June.
2. The plummeting pattern of domestic cotton prices has temporarily stopped
As the external environment shrinks sharply, the downstream decline cannot be concealed, and the power of short-selling funds surges. Zheng Cotton has started a plunge mode since May, and the upstream ginning mills have closed their sales. Textile companies are cautiously waiting to wait and see, waiting for the market to stabilize. With the start of the rotation of cotton reserves on July 13, and driven by rising commodity prices, the decline in cotton prices has slowed down, with a slight increase in late July. As of July 25, the national cotton price B index, which represents the market price of standard-grade lint cotton in the mainland, was 15,902 yuan/ton, down 13.25% from the end of June. The settlement price of the main cotton futures contract on the Zhengzhou Commodity Exchange was 15,200 yuan/ton, down 13.25% from the end of June. It fell 14.41% at the end of the month.
Part 2 Analysis and Outlook
1. Environmental analysis
(1) The Federal Reserve raises interest rates to combat inflation, bringing recession risks to the global economy
After the World Bank significantly lowered its global economic growth forecast for 2022 by 1.2 percentage points to 2.9% in June, in July, the International Monetary Fund once again lowered its global economic growth forecast by 1.1 percentage points to 3.3%. Downside risks from current inflation are emerging. On July 27, the Federal Reserve announced another interest rate hike of 75 basis points, the fourth rate hike this year. After the meeting, Powell’s signal of slowing down the pace of interest rate hikes was interpreted by the market as inducing market perception, buying time for itself, and stimulating U.S. stocks. Rebound from lows. In fact, recession expectations have gradually increased since the sharp interest rate hike in June. After the United States announced that GDP in the second quarter had shrunk again, down 0.9% year-on-year, the expectations were further confirmed.
(2) China consolidates the upward trend of economic recovery and strives to achieve the best results
In the first quarter of 2022, my country’s GDP grew by 4.8%. In April, major economic indicators fell deeply. In May, the decline in major economic indicators narrowed. In June, the economy stabilized and rebounded. In the second quarter, my country withstood the impact and the economy achieved positive growth. The half-year growth rate was 2.5% year-on-year. The Political Bureau meeting held on July 28 pointed out that we are currently at a critical point in economic recovery, and we must maintain strategic focus and strive to achieve the best results for economic growth in the second half of the year.
2. Global cotton supply and demand tend to be looser
(1) Major cotton consuming countries in the world are facing inflationary disruptions
EU textiles and apparel oscillated between a slight recovery and a sharp decline. In April 2022, EU textile, clothing and footwear retail sales increased by 39.4% compared with the same period last year, a slight decrease of 0.3% from the previous month, and still decreased by 18% compared with the same period before the epidemic. Data show that the growth rate of clothing retail sales in European countries slowed down in May, and the low base effect in the same period last year gradually faded. The ONS also warned that the overall trend in sales was still falling, with retailers saying consumers were cutting back on spending due to rising prices and concerns about affordability.
American Apparel enters the destocking phase. According to data from the U.S. Department of Commerce, as of May 2022, the inventory of U.S. clothing and clothing fabric wholesalers has increased by 49.28% year-on-year, and the inventory-to-consumption ratio has reached 2.5%, which has been rising for 11 consecutive months. In June, the retail sales of clothing and clothing accessories in the United States was US$25.764 billion, down 0.39% from the previous month. It has declined for two consecutive months, down 0.25% year-on-year, and has experienced negative growth again since February 2021. Right now, U.S. fiscal stimulus is fading, and consumer concerns about inflation continue to put pressure on consumers.
Vietnam orders surged but then slowed. In the first half of this year, Vietnam’s textile and apparel exports reached US$22.3 billion, a year-on-year increase of 17.7%. However, due to the increase in inventories of US and European importers and inflationary pressure in the second half of the year, Vietnam’s orders showed signs of slowing down in the middle of the second quarter. Some customers have shortened the order cycle from 6 months to 3 months. Vietnam Textile and Apparel Group predicts that demand for textiles and clothing will fall in the second half of this year due to overbuying and inflation.
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(2) Northern Hemisphere 2022A bumper harvest of flowers is in sight
India’s new cotton planting progress is ahead of the curve. Cotton sowing in India is still in progress. Despite recent rainfall in parts of western Gujarat and Maharashtra, India’s overall planting progress has increased significantly. As of July 15, 2022, the cotton sown area was 10.28 million hectares, and the sowing progress increased by 6.4% compared with the same period last year. The United States Department of Agriculture estimates that India’s cotton production in 2022 is expected to be 5.987 million tons, a year-on-year increase of 12.2%. We still need to pay attention to the changes in Indian monsoon rainfall in the future.
US cotton is growing well and the boll setting rate has increased significantly. As of July 24, 2022, the U.S. cotton boll rate was 48%, an increase of 13 percentage points year-on-year and an increase of 10 percentage points compared with the average of the past five years. The recent dry weather in the US cotton area has not yet eased, and the rejection rate is expected to increase. However, it is still too early to draw conclusions about the decline in US cotton production, and we need to continue to pay attention to weather changes in the future.
(3) Global cotton production will increase in 2022, and consumption concerns will continue
In July 2022, the International Cotton Advisory Committee (ICAC) released global cotton production, sales and inventory forecast data for 2022, showing that in 2022, global cotton production will be 26.21 million tons, a month-on-month increase of 0.3%, a year-on-year increase of 1.2%, and consumption of 26.08 million tons. , basically the same month-on-month, down 0.2% year-on-year, with output exceeding demand by 130,000 tons. The ending inventory-to-consumption ratio was 78.64%, up 0.53 percentage points month-on-month, and up 0.72 percentage points year-on-year. Currently, the growth of cotton in the Northern Hemisphere has entered an advanced stage. If no major disaster weather occurs in the future, the increase in global production will be basically clear. The consumer side is facing multiple complex situations such as the loosening of epidemic restrictions, slowing economic growth, inflationary squeeze, and trade barriers. The relationship between global cotton supply and demand Tends to be loose.
3. Domestic consumption has improved slightly despite the sluggish situation
(1) Recent domestic cotton demand trends
1. my country’s domestic demand for textiles and clothing improved in June
As the domestic epidemic situation improved, clothing sales improved significantly in June. According to data from the National Bureau of Statistics, in June 2022, clothing retail sales increased by 2.5% year-on-year, ending eight consecutive months of negative growth; from January to June, clothing retail sales fell by 0.8% cumulatively, 2.1 percentage points slower than the previous month. Online “wear” Retail sales of commodities increased by 2.4% year-on-year, ending the negative growth in the first two months. According to data from the China National Commercial Information Center, in June, the decline in clothing retail sales of 100 key large-scale retail enterprises (mainly department stores) narrowed sharply to single digits.
2. my country’s apparel exports remain resilient
According to customs data, in June 2022, my country’s clothing exports increased by 19.1% year-on-year, and from January to June 2022, they increased by 12% year-on-year. The main factors that support the resilience of my country’s clothing exports are: first, the international market demand is relatively stable and has not yet experienced a sharp decline; second, companies in some areas have quickly resumed work and production as the epidemic situation has improved, and orders squeezed in the early stage have been released; third, bulk commodities High prices drive growth in export value.
(2) Domestic supply waxes and wanes
The rotation of reserve cotton continues to advance, supply pressure has eased slightly, and the purchasing willingness of textile companies remains weak. From July 13 to July 29, 2022, China Reserve Cotton Management Co., Ltd. listed 77,000 tons of Xinjiang cotton for purchase, with a cumulative actual transaction of 39,700 tons, with a transaction rate of 52%. According to data from the National Cotton Market Monitoring System, as of July 28, 2022, cotton processing enterprises have completed 3.815 million tons of cotton sales in 2021, a year-on-year decrease of 2.105 million tons. The year-on-year decrease is compared with 2.6 million tons at the end of May and 2.6 million tons in June. 2.21 million tons has eased, but there are still 1.989 million tons for sale. Due to insufficient downstream orders, textile companies maintain low raw material inventories. As of early July, the national cotton industry inventory was approximately 637,000 tons, a year-on-year decrease of 29.0%.
Expectations for a new cotton harvest are getting stronger. According to the latest growth survey report of the National Cotton Market Monitoring System, as of the end of June 2022, the weather in the main cotton-producing areas is generally conducive to cotton boll formation and cotton wadding. The total new cotton output in 2022 is expected to be 6.061 million tons, a year-on-year increase of 4.5%. Among them, cotton in Xinjiang is growing well and picking is expected to be ahead of schedule.
(3) Domestic cotton consumption is reduced in 2021 and domestic cotton production is increased in 2022
Based on relevant special investigations and analysis of domestic and foreign economic environments and market conditions, this issue of the National Cotton Market Monitoring System has made the following adjustments to China’s cotton production, sales and inventories in 2021 and 2022:
In this period, China’s cotton consumption in 2021 is reduced by 300,000 tons to 7.4 million tons, a year-on-year decrease of 1.21 million tons, a decrease of 14.1%; the import volume is reduced by 61,000 tons to 1.789 million tons, a year-on-year decrease of 957,000 tons, a decrease of 34.8%; Cotton The output remained at 5.801 million tons in the previous period, a year-on-year decrease of 149,000 tons, or 2.5%. The inventory-to-consumption ratio was 87.18%, an increase of 13.9 percentage points from the previous year.
In this period, China’s cotton production in 2022 is raised by 228,000 tons to 6.061 million tons, a year-on-year increase of 260,000 tons, an increase of 4.5%; cotton consumption remains at 7.8 million tons in the previous period, a year-on-year increase of 400,000 tons, an increase of 5.4%, and import volume remains unchanged The 2.05 million tons in the previous period increased by 260,000 tons year-on-year, or 14.5%. The inventory-to-consumption ratio was 86.41%, a decrease of 0.77 percentage points from the previous year.
in conclusion
To sum up, the current cooling trend of the global economy is still continuing, and inflation continues to rise. Inflation rates in the United States and many European countries have reached the highest level in 40 years. High inflation has weakened consumer purchase demand. There is an obvious surplus of clothing inventory in the United States, and global cotton consumption Lack of confidence and motivation. After the domestic reserve cotton rotation was launched, the market supply pressure has eased. After the epidemic improved, although the demand has recovered slightly, due to the lack of follow-up orders, the upstream and downstream have not yet shaken off the decline. It is only more than a month since the new cotton was launched on a large scale, and the rebound in cotton prices has been limited. As long as there are no major emergencies in the macro environment, weather changes and cotton growth conditions are the biggest variables in the market, and we should pay close attention to this.
�Inflation continues to rise. Inflation rates in many countries in the United States and Europe have reached the highest level in 40 years. High inflation has weakened consumer purchase demand. There is an obvious excess of clothing inventory in the United States, and global cotton consumption confidence and motivation are insufficient. After the domestic reserve cotton rotation was launched, the market supply pressure has eased. After the epidemic improved, although the demand has recovered slightly, due to the lack of follow-up orders, the upstream and downstream have not yet shaken off the decline. It is only more than a month since the new cotton was launched on a large scale, and the rebound in cotton prices has been limited. As long as there are no major emergencies in the macro environment, weather changes and cotton growth conditions are the biggest variables in the market, and we should pay close attention to this.
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