On Friday night, U.S. ICE cotton futures hit their lower limit, down 3.99%, to 72.11 cents/pound. What causes cotton to continue its decline?
“The external market has continued its decline recently, and closed at the limit again last Friday, hitting a new low since the end of 2020. The performance of U.S. cotton is so weak. The main reasons are as follows: First, the latest U.S. economic data released in October showed the momentum of economic decline. Intensified, the market is increasingly worried about the weakening of consumption in the future, and U.S. clothing inventories continue to increase; secondly, the northern hemisphere is currently in a period of concentrated acquisition, and the overall harvest of U.S. cotton is progressing well. With the large-scale launch of new crops, global cotton supply will Gradually increasing; third, the poor performance of US cotton weekly export sales data in recent weeks has further suppressed market confidence and promoted the rapid decline of the external market.” said Li Xin, agricultural products analyst at Shenyin Wanguo Futures.
The reporter noticed that domestic Zheng cotton has also broken down recently. In addition to being driven by the recent sharp decline in the external market, the main reason is that the domestic fundamentals are not good. The quality of the “Golden Nine and Silver Ten” peak season is insufficient, and the consumption decline is obvious. The latest foreign trade in September was announced. Export data declined month-on-month and year-on-year.
“There is not much supply pressure in the short term, but supply will be released intensively in November after the epidemic eases, making the market generally pessimistic about the market outlook and continuing to put pressure on domestic cotton prices.” Li Xin said.
Wu Xinyang, a senior researcher for soft commodities at CITIC Futures, told reporters that the main reason why US cotton fell by the limit and Zheng cotton continued to decline is that the overall weak supply and demand trend facing the global cotton market has not ended. The current weak supply and demand situation does not only lie in the supply and demand performance of this link in the cotton market, but also in the entire cotton textile industry chain, from the most upstream planting to the most downstream clothing consumption. There have been serious conflicts at these two ends. Supply and demand mismatch. The current supply of production capacity, including cotton planting area, ginning production capacity and textile production capacity, has been subject to disorderly expansion due to the rebound in profits due to heavy consumption in the early stage, and the global market is facing a trend of continued decline in consumption. Currently, the European and American markets are severely overstocked with clothing, which is gradually beginning to drag down the issuance of spring and summer textile and clothing orders. Excess production capacity on the supply side will inevitably lead to the accumulation of channel inventory, and prices will continue to suffer downward pressure during the cycle of active inventory reduction.
What is the current global cotton supply and demand situation?
According to the October estimate of the United States Department of Agriculture, the global production increase in 2022/2023 this year will be limited, with an increase of 547,000 tons from the previous year to 25.703 million tons. Global cotton consumption this year is expected to reach 25.169 million tons. This estimate is higher than that in February. The Outlook Forum’s first forecast fell significantly.
“Previous market concerns about U.S. cotton production have been dashed. It can be seen that the production speculation in major producing countries, mainly the United States, has basically ended, and the early drivers have also been digested. The main adjustment object in this report is consumption, which has significantly lowered the global Cotton consumption is in line with previous market expectations, which ultimately led to a significant increase in global ending stocks, strengthening the expectation that cotton supply will become looser in the new year. Next, the world will usher in a large-scale launch of new crops in 2022/2023, and international cotton prices may It will start a new round of decline.” Li Xin said.
Looking back at China, the current domestic Xinjiang cotton picking progress is slightly faster than the same period in previous years, but the sales progress lags behind significantly. As of October 20, the sales progress in Xinjiang was less than 30%, while the same period in previous years was basically more than 40%. “There is currently a certain amount of depletion of cotton in the mainland’s warehouses. Due to limited shipments in some areas of Xinjiang and the slow launch of new flowers, short-term supply has tightened. However, downstream textile companies maintain a buy-and-use low inventory strategy, and the demand for cotton is limited. Supply and demand The conflict is not intense,” Wu Xinyang said.
In fact, after the National Day, the purchase and processing of new cotton continued to slow down, the time to market was delayed, and cotton sales were not smooth. The raw material inventories of downstream textile companies are at historically low levels, and the short-term supply tightening has made spot prices strong and the basis spread continues to expand.
Li Xin told reporters that as new cotton picking has entered the late stage recently, the progress of Xinjiang cotton acquisition has accelerated slightly, but the overall situation is still slower than the same period in previous years. According to data from the National Cotton Market Monitoring System, as of October 27, Xinjiang’s seed cotton sales progress was 60.2%, a year-on-year decrease of 24.6 percentage points. However, the efficiency of new cotton exports from Xinjiang has improved recently, and the supply from the mainland is expected to gradually increase. In terms of demand, as the peak consumption season comes to an end, domestic downstream demand has weakened, textile companies have obvious inventory accumulation of finished products, and there is a lack of terminal orders.
In the current environment of continued interest rate hikes, global economic growth will slow down. Where will the market outlook for cotton go?
“The current moment for cotton has not yet reached a reversal. On the one hand, we still need to beware of the impact of the macro market on bulk commodities. In addition, downstream consumption has weakened, and we should be wary of excess textile production capacity causing accumulation of inventory again.” Wu Xinyang said.
Li Xin believes that the expectation of weakening global cotton consumption remains unchanged. The global cotton supply and demand pattern is expected to turn loose in the future, and the downward driving force of international cotton prices will gradually increase. Domestic spot prices have resisted falling in the short term, but supply will be concentrated in the later period, and downstream demand is expected to weaken, so cotton prices will remain low in the market outlook.��Downward pressure.
</p
