Since April, the cotton textile market has continued its strong momentum during the peak consumption season, with downstream textile companies operating at a high load. In addition, the market has increased concerns about production cuts in the new year, and domestic cotton prices have continued to rise. However, risks and worries in foreign financial markets still exist. As consumption continues to be weak, foreign cotton prices are under pressure, resulting in the continuous contraction of the price difference between domestic and foreign cotton. Finally, by the end of April and early May, the inversion of domestic and foreign cotton ended.
“Domestic and domestic cotton prices have maintained an inverted pattern since March 2022. Recently, as domestic cotton prices have continued to rise, the price difference has gradually narrowed and turned from negative to positive. The reason for the relatively strong internal performance is that the contradiction between domestic supply and demand has become more prominent during the Spring Festival. Domestic demand has continued to recover since then, and foreign trade orders have also performed better than expected. Coupled with unfavorable weather in Xinjiang for cotton sowing and emergence, production reduction expectations have driven domestic cotton prices to continue to strengthen. Externally, as the supply and demand of the global cotton market in 2022/2023 tends to be loose, room for growth is limited .” said Li Xin, cotton analyst at Shenyin & Wanguo Futures.
Gao Feitang, a cotton analyst at Zhuochuang Information, told reporters that since April, the cotton textile market has been significantly driven by the peak consumption season. Most textile companies have low yarn product inventories and operating loads have remained high. According to monitoring, the start-up load of textile enterprises in the main sales area of Shandong reached 75% in April, an increase of 8 percentage points from the previous month; the order scheduling time for textile enterprises reached 10 days, an increase of 2 days from the previous month. The start-up load and order scheduling time reached its highest level in the past two years. At the same time, due to the low inventory of yarn products in most textile companies and the low pressure on production and sales, some companies have increased their raw cotton reserve stocks, providing strong support for cotton market consumption.
“Although the spot price of cotton continues to rise, downstream textile companies are not very receptive to high-priced cotton, and they still mainly purchase rigid needs. After entering the off-season in May, downstream orders decreased significantly, and purchases and sales were also relatively deserted. The rise in cotton prices also It has not been effectively transmitted to downstream, and the prices of cotton yarn and gray fabric have weakened recently,” Li Xin said.
Recently, Zheng cotton has risen strongly driven by the positive supply side. The survey report of the China Cotton Association shows that the intended cotton planting area nationwide in 2023 is 41.5575 million acres, a year-on-year decrease of 7.4%, and the decline is 3.7 percentage points larger than the previous period. Since April, low-temperature rain and snowfall have occurred in Xinjiang, which has adversely affected cotton sowing and emergence, further exacerbating market concerns about a sharp drop in production in the new year and providing a boost to speculation about production cuts. The temperature in Xinjiang rose rapidly in May, and Zheng cotton fell for a time. However, Xinjiang has recently experienced heavy rainfall, accompanied by strong winds and sandstorms in some areas, which may have an adverse impact on the growth of cotton seedlings. This has once again aroused the market’s attention to the weather, and futures prices have hit another high. Staged new high.
“The cotton sown area in Xinjiang will generally decrease in 2023. According to our survey results, the total cotton sown area in Xinjiang may decrease by 8.16% in 2023. At the same time, since the start of spring sowing this year, temperatures in northern and southern Xinjiang have generally been low, especially in northern Xinjiang due to Insufficient accumulated temperature has delayed sowing by 5 to 7 days. In addition, extreme weather such as heavy sandstorms, snowfall, and hail occurred in some areas in mid-to-late April and early May, resulting in resowing in some cotton fields. It is expected that the growth progress of cotton seedlings in the new year may be delayed by 10 days compared with the same period last year. -15th, it will affect the weight of cotton bolls and may lead to an expansion of production cuts.” Gao Feitang said, in addition, industry insiders’ expectations of tightening supply in the new year have increased, and spot sales prices have generally increased. Domestic prices rose significantly in April. At the end of the month, the price of 3128B grade lint cotton was 15,554 yuan/ton, an increase of 792 yuan/ton from the beginning of the month, an increase of 5.37%.
In fact, on the domestic supply side, due to the dual effects of the decline in intended planting area and low temperature weather during the sowing period, the probability of cotton production reduction in the new year has greatly increased. On the demand side, the current operating rate of downstream textile enterprises remains high, while the inventory of finished products is still at a historically low level. The overall performance is acceptable, and the negative feedback brought by the demand side is not obvious. “However, the next May to July is the off-season for the textile industry, and downstream demand is expected to weaken, which will put some pressure on domestic cotton prices in the short term. However, the logic of continued recovery in domestic demand in the medium and long term has not changed, and China has become the supporter of global cotton consumption. The main force of recovery.” Li Xin said.
It is worth noting that high inflation in Europe and the United States continued in April, causing industry concerns that the tightening policy of continuing to raise interest rates may reduce residents’ consumption motivation for textiles and clothing. In early April, USDA released data showing that China’s cotton consumption was 7.947 million tons, 3% month-on-month. The month-on-month increase was 1.39%; while the cotton consumption in foreign regions was 16.041 million tons, a month-on-month decrease of 0.58%. In addition, the weekly net contract volume of U.S. cotton announced in late April dropped by 57% month-on-month and 72% lower than the four-week average, further making the market worried about the periodic decline in demand in the foreign cotton market, and foreign cotton prices have also plummeted.
In May, the USDA report announced for the first time the supply and demand forecast for the cotton market in 2023/2024, slightly lowering global cotton production by 150,000 tons to 25.19 million tons, while also significantly increasing global cotton consumption by 1.44 million tons to 25.31 million tons. Finally, As a result, the ending inventory was reduced by 80,000 tons compared with the previous year. “The USDA report is overall bullish, 2023/2Global cotton consumption will recover significantly in 2024, and global cotton market supply and demand are expected to strengthen, supporting an upward shift in the center of gravity of international cotton prices. “Li Xin said.
In fact, with the domestic economy expected to improve, consumption in the cotton textile market has increased significantly. Extreme weather has disrupted the normal emergence and growth of cotton, and supply expectations have shrunk. This has prompted cotton companies to increase their willingness to raise prices and ship goods, and domestic cotton prices have subsequently risen. ; Against the background of weak foreign expectations, consumption has declined, forming a clear contrast with domestic consumption.
According to monitoring, the price difference between domestic and foreign cotton (domestic cotton price – foreign cotton price) was -1,565 yuan/ton in early April. On April 28, the price difference was 18 yuan/ton, which turned positive for the first time since April last year. As of May 16, the price difference between domestic and foreign cotton prices continued to be positive. Domestic cotton prices have returned to above foreign cotton prices, which may increase the cost of cotton for textile companies, and the subsequent competitive pressure with foreign cotton markets may increase.
Regarding the market outlook, Li Xin believes that demand support has weakened after the downstream entered the off-season, and the current fundamentals lack substantial benefits. The impact of weather on output remains to be seen. Zheng Cotton is expected to oscillate mainly in the short term. In the medium to long term, a decline in domestic cotton production is a high probability event. Many ginneries have been upgrading and renovating processing equipment this year. For ginneries whose production capacity continues to expand, if cotton production faces a reduction, there is a high probability that new cotton will be harvested in the future. This year will happen again, and the center of gravity of mid- to long-term cotton prices is expected to continue to rise.
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