Since Zheng cotton bottomed out and rebounded on July 15, although it once rose by more than 10%, it soon encountered a retracement. The trend was significantly weaker than other commodities, and the rebound rate of domestic cotton was weaker than that of foreign cotton. Factors such as the epidemic, bleak economic prospects, U.S. interest rate hikes, and weak domestic demand continue to plague cotton prices. The “Golden Nine and Silver Ten” market that the market is looking forward to is expected to be greatly reduced. In the later period, it can only rely on time and low prices to survive the downturn.
1. Global economic growth slows down
Affected by the COVID-19 epidemic, conflicts between Russia and Ukraine, and geopolitical risks, global inflation rates are generally high. The United States, Europe, Canada, etc. have raised interest rates one after another, and expectations of economic recession have emerged. The International Monetary Fund (IMF) has lowered its global economic growth forecast three times in a row. On July 26, the IMF released an updated version of the “Global Economic Outlook Report” predicting that global economic growth will slow down by half from 6.1% last year to 3.2% this year. , 0.4 percentage points lower than the April forecast; global economic growth is expected to be 2.9% in 2023, 0.7 percentage points lower than the April forecast.
The IMF believes that accelerating inflation in major economies such as Europe and the United States has tightened the global financial environment. A series of interest rate hikes by central banks will have an impact in 2023, and the global economy will further slow down. While agencies still expect positive economic growth, it will do little to quell recession fears as inflation erodes consumer incomes, savings and corporate profits.
Specifically, the IMF’s economic growth forecast for the United States in 2022 and 2023 is 2.3% and 1.0% respectively, which are 1.4 and 1.3 percentage points lower than the April forecast respectively. Gourinchas said that the United States’ real GDP growth rate in the fourth quarter of 2023 was only 0.6% year-on-year, and it may fall into a technical recession.
The Eurozone’s economic growth forecasts for this year and next are 2.6% and 1.2% respectively, down 0.2 and 1.1 percentage points respectively from the April forecast.
Similarly, China’s economic growth has slowed down, with China’s GDP growing by 2.5% in the first half of 2022, 4.8% in the first quarter, and 0.4% in the second quarter. The growth rate in the first half of the year was 2.5%. However, it is almost an impossible task to achieve the predetermined growth target of 5.5% for the whole year.
2. U.S. cotton production may increase Global cotton surplus trend
Judging from the August cotton supply and demand report released by USDA, the biggest change is that U.S. cotton production has been significantly reduced. Although global consumption has also been reduced, global cotton supply and demand still maintains a supply shortage, and ending stocks have also decreased. The author believes that the USDA’s estimate this time has a large subjective factor and overestimates the abandonment rate of US growers. The actual US cotton output will exceed this estimate. It can be seen from the US cotton planting report released this week that the good rate It is only a 3 percentage point drop from last year, but the estimated output in 2022/23 is the lowest since 2009/10, a year-on-year decrease of about 19%, which is obviously unreasonable. Once the USDA gradually increases U.S. cotton production in the later supply and demand report, the global cotton supply and demand relationship will transform into a surplus. Judging from historical production and consumption statistics, surplus or shortage will not recur in a short period of time and will last for at least 6 years. -7 months, up to 2 years.
3. Xinjiang cotton ban increases domestic inventory pressure
Since the U.S. ban on Xinjiang cotton was officially implemented in late June, textile and clothing orders exported to the U.S. have indeed been greatly affected. Almost every order needs to be traced back to the origin of raw cotton, and Southeast Asian countries (such as Vietnam) are even required to provide traceability certificates for the fabrics. , it is difficult to destock domestic cotton. According to data from the National Cotton Market Monitoring System, Xinjiang’s cotton sales rate was 66.1%, a year-on-year decrease of 33.7 percentage points, and a decrease of 27.9 percentage points from the average of the past four years. Based on the 5.262 million tons of Xinjiang cotton, there are still 1.67 million tons of old cotton for sale.
In terms of inventory, domestic cotton commercial inventories in July were 3.194 million tons, a year-on-year increase of 691,000 tons, the highest in the past five years; industrial inventories were 578,100 tons, a year-on-year decrease of 336,400 tons, a new low in the past five years. This shows that the upstream cotton inventory is now overstocked, while downstream procurement is not active and confidence is low.
4. The price has bottomed out and the dawn has begun to show. The autumn wind is still chilly
The USDA “intentionally” lowered U.S. cotton production, helping ICE cotton bottom out at 84 cents, with a rebound of more than 35%. Even if the Federal Reserve raised interest rates in September, the USDA also raised the average cotton price in its August report. At 95 cents, the fund has increased its net long position in cotton for three consecutive weeks. The cost of increasing its holdings is expected to be 115 cents. It is expected that it is almost impossible for U.S. cotton to fall below 90 cents. Domestic cotton has a price advantage when the price difference between domestic and foreign cotton is as high as 3,500 yuan/ton, and the probability of hitting a new low is very small.
But the reality is very “skinny”. High inventories and weak downstream demand have kept the entire cotton industry chain in a low-inventory state, except for the raw material end. Now that the new cotton harvest is imminent, the huge inventory of old cotton and new cotton are slowly coming onto the market, suppressing cotton prices and making it difficult to turn around. In this context, the market can only digest the pressure through time and low prices, and continuously stabilize the bottom, so that it can usher in a rebound in the later period.</p
