Xinjiang is the main cotton producing area in my country, and the new cotton harvest season attracts great attention from the market every year. The market situation this year is complex, and Xinjiang cotton sales have undergone many new changes, which have also had many impacts on the market.
The decline in seed cotton production is in line with market forecasts
There is a big controversy over Xinjiang’s cotton production this year, China Cotton Network Reporters are also always paying attention to production information. According to field research in southern Xinjiang, the average yield per mu has indeed declined, and the proportion should be controlled within 10%. The yield reduction in a few heavily affected plots has been larger. Overall, the reduction in total cotton production in Xinjiang this year is limited and will not have an impact on the fundamentals of cotton supply and demand. There is no reason to become an excuse for financial speculation. According to the National Cotton Market Monitoring System’s May actual sowing area survey results of 42.463 million acres, the total cotton output in 2021 is expected to be 5.680 million tons, a year-on-year decrease of 4.5%, and a decrease of 4.8% from the average of the past three years. Taking into account the better-than-normal weather in Xinjiang last year, record-high production, and this year’s cotton growth, there is a base effect in Xinjiang’s cotton production reduction this year. Xinjiang’s output is expected to be 5.149 million tons in 2021, a year-on-year decrease of 1.9%.
The price of seed cotton is high and the cost of new cotton is locked
Affected by weather factors this year, the picking progress in northern Xinjiang Later than the same period last year, the price of seed cotton opened high and fell, rising from 9.5 yuan/kg in the initial stage of scale purchase to 11.5 yuan/kg, resulting in rising procurement and processing costs and increasing market risks. Although prices fell back in late October, the early purchase price was too high and the cost of new cotton remained high. At the end of October, the purchase of Beijiang has entered its final phase, and the cost of new cotton purchase and processing has been locked. According to predictions by local cotton experts, the cost of machine-picked cotton in Northern Xinjiang should be around 24,000 yuan/ton. Southern Xinjiang ginning companies said that as the harvest process accelerates, the price of Southern Xinjiang seed cotton continues to decline, and the overall lint cost should be 21,000-22,000 yuan/ton.
Cotton prices have fallen and the market has calmed down
In late October, there was still a large amount of cotton in southern Xinjiang Due to stranded cotton fields, the current selling price of seed cotton is generally lower than the price in Northern Xinjiang. This year, the price of seed cotton opened high and then fell. Sales in Northern Xinjiang caught up with the price peak. As market sentiment gradually calmed down, the price of seed cotton was stable but fell. This year, self-owned ginning companies have been very calm. When the price of machine-picked cotton is higher than 10.5 yuan/kg, harvesting is reduced or stopped. Some ginning companies that contract factories rush to harvest part of the high-priced seed cotton in the early stage, resulting in a significantly higher cost of processed lint cotton. The current price difference is more than 2,000 yuan/ton, and companies are temporarily unable to hedge, leaving exposure risks. With the advent of frost weather, the quality of seed cotton will inevitably decline, and the price of seed cotton will also steadily decline, reducing the probability of rising again.
The quality of more than half of the seed cotton harvests is better than last year
According to survey data from the National Cotton Market Monitoring System, As of October 22, 2021, the national new cotton picking progress was 57.2%, a year-on-year decrease of 14.8 percentage points, of which the Xinjiang picking progress was 56.3%; the national sales rate was 79.9%, a year-on-year decrease of 6.0 percentage points, of which the Xinjiang sales rate is 84.6%. Based on the estimated domestic cotton output of 5.68 million tons (forecast by the National Cotton Market Monitoring System in September 2021), as of October 22, a total of 2.596 million tons of seed cotton and lint cotton have been sold nationwide, a year-on-year decrease of 1.029 million tons; a total of 910,000 lint cotton has been processed tons, a year-on-year decrease of 465,000 tons.
Affected by the climate, Xinjiang’s cotton output has declined to a certain extent this year, but the quality has improved significantly. Judging from the indicators sold and processed by cotton farmers in southern Xinjiang, it was common for seed cotton clothing to have a score of more than 42% in previous years. This year, it is generally lower. The quality of southern Xinjiang cotton is significantly better than in previous years, especially the “Double 29” and “Double 30” index cotton. The ratio is higher.
The operating rate has picked up and inventory pressure has increased
A few days ago, the mainland’s power restriction policy has been eased. The operating rate of enterprises has increased significantly. According to cotton spinning professionals, the startup rate of textile companies in Jiangsu and Shandong has increased, and the time for power cuts and production shutdowns has been shortened. Due to the large inventory of downstream cloth mills and the high yarn prices, textile companies have begun to accumulate finished products. In order to reduce inventory and increase turnover rate, some companies have begun to sell cotton yarn at reduced prices. The inventories of textile enterprises generally remain for 1-3 months, and the willingness to purchase has been low in the near future. As production capacity is gradually released, the demand for raw materials will also increase. Capacity release is a double-edged sword. While stimulating the demand for raw materials, it will undoubtedly increase the pressure on downstream production links. In the case of high inventory pressure on cloth mills and strong raw material prices, it can only compress the profits of yarn mills. It is reported that the release of cotton reserves has significantly reduced the costs of cotton mills and increased their profits. Once companies use high-priced raw materials, production and sales will be hindered, and price transmission will inevitably come under pressure.
According to the latest data from the General Administration of Customs of China, in September 2021, my country’s textile and clothing exports were US$29.132 billion, a month-on-month decrease of 3.29%. Among them, the export value of textiles (including textile yarns, fabrics and products) was US$12.409 billion, a month-on-month decrease of 0.92%; the export value of clothing (including clothing and clothing accessories) was US$16.723 billion, a month-on-month decrease of 4.98%. In September 2021, my country’s cotton cloth exports dropped significantly by 16.25% year-on-year, while the year-on-year growth rates of cotton cloth exports from May to August 2021 were 33.18%, 20.79%, -11.42%, and -5.33% respectively. It can be seen that in the second half of the year, the quantity and amount of my country’s cotton exports showed a relatively obvious decline year-on-year; and the decline suddenly accelerated in September.
Based on the above situation, the situation of my country’s textile exports is not optimistic. With shipping costs at high levels and the recovery of foreign cotton spinning industries at an important stage,Under such conditions, orders face the risk of backflow.
The short-term trend of cotton price fluctuations is difficult to change
Recently, the price of Zheng cotton has started to fluctuate. Now inversion has become a norm and is difficult to change in the short term. For ginning companies, the price difference between futures and current prices is too large. Without hedging, it is almost impossible to sell lint at a large loss. Cotton ginning companies in southern Xinjiang said that they have worked hard to purchase and process lint cotton and will not engage in a loss-making business. Xinjiang’s cotton output this year has reached more than 5 million tons. It has never happened before that such a large amount of cotton cannot be hedged. As the cost of southern Xinjiang has not yet been specifically calculated, the market will not easily give opportunities. Therefore, continued fluctuations below the cost line have become the norm.
At present, the price of cotton is close to twice the price of chemical fiber and PTA. Under such a large price difference, the possibility of the price difference between the three continuing to expand is limited. Recently, many commodities have shown signs of reaching a top. Under the influence of the sharp decline in black series and the tightening of funds at the end of the year, Zheng Mian has been unable to survive alone.
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