Since last year, the main cotton contract CF309 has increased from the lowest of 12,315 yuan/ton at the end of October last year to the highest of 16,065 yuan/ton on May 8, with a cumulative increase of 30%.
The reporter noticed that this wave of rise was actually divided into two waves. The first wave is from early November 2022 to the end of February 2023. The logic behind this wave is the market’s correction of cotton prices under the impact of the epidemic. The market has gone from extreme pessimism to relative optimism after the epidemic quickly passed its peak, and cotton valuations have recovered from below 13,000 yuan/ton to around 14,000 yuan/ton. In this process, the cotton spinning industry chain inventory has been compressed to the lowest level and returned to normal inventory levels, with the basis weakening from 2,000 yuan/ton in early November 2022 to the normal level of 500 yuan/ton. The second wave is from the end of March 2023 to early May 2023. The main driver is the market’s advance trading of the expected reduction in Xinjiang cotton production in 2023/2024. The market first traded from the end of March to mid-April that the cotton planting area in Xinjiang would be significantly reduced in the new year, and then from mid-April to early May it traded the impact of Xinjiang’s sharp cooling and windy weather on yields.
What is the current supply and demand situation of cotton at home and abroad? Zhang Xiaojin, director of resource product research at Everbright Futures, told reporters that this year global cotton has been oversupplied. In 2022/2023, global cotton production is expected to be 25.33 million tons, global cotton consumption is expected to be 23.87 million tons, and production exceeds consumption by 1.46 million tons. tons, the supply side is under great pressure. Global cotton imports are expected to be 8.25 million tons, a significant year-on-year decrease.
“In 2022/2023, domestic cotton will be in an overall oversupply situation. Among them, Xinjiang cotton production has reached a record high. Based on the estimated amount of Xinjiang cotton processed, cotton production in 2022/2023 is estimated to be 6.24 million tons, an increase from the previous year About 900,000 tons. Consumption has been affected by the epidemic, and the entire industry chain has shown a pattern of active destocking. Cotton imports for the year are estimated to be less than 1.4 million tons, 300,000 tons less than last year.” said Chen Xiaoyan, cotton analyst at Dadi Futures.
Zhang Xiaojin believes that the current domestic cotton supply peak has passed, and cotton commercial inventories have entered a downward channel. According to seasonal rules, cotton commercial inventories will continue to decline, reaching the lowest value in the year in September. On the demand side, domestic cotton has been in a state where expectations are stronger than reality for a long time, and it will still take some time for demand to improve. In terms of import and export, cotton imports have remained at a low level so far this year. Textile and clothing export data in March and April improved beyond expectations, but the improvement in export data is expected to be less sustainable.
According to relevant data, as of the end of March, domestic cotton commercial stocks were 5.07 million tons, the highest for the same period in recent years. With the reversal of the price difference between domestic and foreign cotton, imported cotton has become attractive in terms of price. As of last week, the price difference between the domestic 328 cotton price index and the imported cotton price index under the 1% tariff was 750 yuan/ton; the price difference with the imported cotton price index under the sliding tax was 600 yuan/ton.
According to Wang Xiaobei, senior analyst of Hongye Cotton, the supply of domestic cotton and imported cotton is very sufficient. At present, the domestic cotton industry inventory is close to 700,000 tons, and the demand for downstream replenishment has slowed down; and with the rise in Zheng cotton prices and the arrival of the seasonal consumption off-season, the enthusiasm for downstream replenishment has further declined.
“In 2023/2024, the domestic cotton balance sheet is expected to show a destocking pattern as a whole. The overall pattern shows a decline in production and a weak recovery in consumption. The supply and demand balance sheet has a detailed improvement compared with 2022/2023, with expected production details decreasing and consumption remaining flat or slightly Increase. Regardless of the national rotation reserve policy, marketable inventory will decline. Cotton imports are expected to increase slightly.” Chen Xiaoyan said.
What is the situation of planting area this year?
According to the China Cotton Association, my country’s new cotton planting area is expected to be 41.489 million acres this year, a decrease of 7.8% year-on-year. Among them, the cotton planting area in Xinjiang is 37.25 million acres, a decrease of 1.6% year-on-year. The decline in new cotton planting area this year is a foregone conclusion, and the most direct impact is the decline in new cotton production. It is expected that my country’s new cotton production will drop by at least 10% to less than 6 million tons in 2023/2024, and the pressure on the cotton supply side will be significantly relieved.
The reporter noticed during the interview that the main current trading forecast is the cotton supply and demand balance sheet for the new year.
“Currently, the expectation of reduced output in Xinjiang has been mostly traded by the market, but the specific impact of severe weather on output needs to be determined after on-site research in Xinjiang. If it is proven that the impact of the weather is not that big, the market will mainly trade the expected difference. Of course, if the weather performance continues to be poor in the future, the market will continue to trade the weather variable,” Chen Xiaoyan said.
In addition, Chen Xiaoyan believes that the current market is also paying attention to downstream consumption. Since the Qingming Festival, the downstream cotton spinning market should theoretically enter the traditional off-season. However, the demand for hotel linens in the downstream home textile category has performed better this year, and it is more likely to be strong in the off-season. Spinning mills maintain high operating rates and low inventory levels, which also supports further market price increases. As downstream orders enter a phased end, demand factors may become factors inhibiting the rise in cotton prices, which also needs attention.
Regarding the future of cotton, Zhang Xiaojin believes that the supply and demand situation of cotton this year has been very clear, and the story of this year…The economy is basically over, and current market transactions are about expectations for cotton in the new year. Cotton has entered a stage of oscillation adjustment. Last weekend, the USDA May report had a relatively optimistic outlook for 2023/2024, and the main contract price of Zheng cotton stopped falling and fell back. In the USDA report, global cotton production is expected to be basically the same year-on-year in 2023/2024, but China’s cotton production has dropped significantly year-on-year; global cotton domestic consumption and import and export demand have increased significantly year-on-year, and China’s cotton consumption is expected to improve. In the long term, my country’s cotton fundamentals show a pattern of declining supply and improving demand. The fundamentals have strong support for Zheng cotton prices, and we are bullish on Zheng cotton in the long term. However, it should be noted that judging from recent domestic economic data, the bottom support for the current improvement in consumption is weak, and it may take a longer time for demand to improve.
“The cotton market as a whole this year is defined as oscillating but with a rising bottom, but it is still some distance away from the expected highest point. The main contradiction in the cotton market in the future is whether the factors that support the rise in cotton prices will dominate, or the factors that inhibit the rise in cotton prices will dominate. “Chen Xiaoyan said that at present, the first factor restraining the rise in cotton prices has emerged, which is the arbitrage power of buying outside and selling inside. As domestic cotton prices continue to rise, the current internal and external differential has shifted from “low internally and high externally” to “high internally and low externally”. Such a relationship between domestic and foreign cotton prices will support more foreign cotton and cotton yarn coming to China in the future, which will have a certain inhibitory effect on domestic cotton prices.
Wang Xiaobei believes that the decline in cotton planting area this year will have a greater impact on cotton output expectations. According to the latest US farmers’ report, China’s cotton output in 2023/2024 is estimated to be 27.5 million bales, a year-on-year decrease of 3.2 million bales. The overall supply and demand have tightened compared with this year, and it is a high probability event that the focus of cotton prices will shift upward.
</p
