Since June 2022, global inflation has reached a new high, overseas monetary tightening policies have been unprecedentedly intense, and the global economy is facing the risk of stagflation since 1970. Commodity prices have “dived” and cotton prices have fallen from highs.
Part One Market Review
1. International cotton prices set off a plummeting trend
As the U.S. inflation index CPI climbed to 8.6% in May, another 41-year high, the Federal Reserve announced a 75 basis point interest rate hike, exceeding market expectations and the largest increase in 28 years. Panic selling occurred in the U.S. stock and commodity markets, and international cotton futures prices Encountered a plummeting trend. As of June 30, 2022, the settlement price of the main ICE cotton futures contract was 98.84 cents/pound, down 19.28% from the end of May; the International Cotton Index (M), which represents the average CIF price of imported cotton in China’s main port, was 145.41 cents/pound. , a decrease of 6.99% from the end of May, and the RMB import cost discounted by 1% tariff is 23,794 yuan/ton (excluding port miscellaneous goods and freight), a decrease of 2.01% from the end of May.
2. Domestic cotton prices plummeted
Since June 2022, the domestic textile market has entered the off-season. The United States has implemented a ban on Xinjiang-related products since June 21, which has made the already sluggish textile market “even worse.” The external financial environment further confirms what we proposed in the April monthly report. The “environment has shrunk sharply”, and the superposition of multiple factors has jointly triggered the domestic cotton futures price to start a continuous plummeting pattern. As of June 30, the national cotton price B index, which represents the market price of standard-grade lint cotton in the mainland, was 18,330 yuan/ton, down 14.90% from the end of May. The settlement price of the main cotton futures contract on the Zhengzhou Commodity Exchange was 17,760 yuan/ton, down 14.90% from the end of May. It fell 13.15% at the end of the month.
Part 2 Analysis and Outlook
1. Environmental analysis
(1) The global economy is repeating the mistakes of stagflation since the 1970s, and the U.S. economy is at risk of recession.
On June 7, the World Bank lowered global economic growth in 2022 from 5.7% in 2021 to 2.9%, 1.2 percentage points lower than the 4.1% forecast in January. It was the second time it lowered its economic forecast this year and warned that It is said that the global economy may fall into 1970s-style stagflation, and many countries are at risk of recession. Federal Reserve Chairman Powell also acknowledged the possibility of a recession in the U.S. economy and the difficulty of achieving a soft landing, and affirmed that the Federal Reserve will continue to raise interest rates to curb inflation.
(2) Commodities enter the stage of squeezing valuation bubbles
Overseas central banks have made unprecedented efforts to raise interest rates, and with expectations of a global economic recession rising, the stock market has already begun to decline. Recently, commodity prices have fallen across the board, with many varieties hitting new lows. The commodity bull market since the current epidemic may have reached an inflection point and entered the de-bubble stage. . The Nasdaq Index has now fallen 53% from its historical high in November 2021, and the CRB Commodity Index has begun to fall from its high in early June 2022, with a cumulative correction of 11% in June.
2. The global cotton supply and demand relationship is likely to become looser
(1) Trends in cotton producing and marketing countries around the world
1. U.S. clothing inventories are high and consumer confidence has dropped to a record low
According to data from the U.S. Department of Commerce, the U.S. clothing inventory-to-sales ratio bottomed out in June 2021 and rose to 2.42% for 10 consecutive months from July 2021 to April 2022, reaching the highest level since records began in 1992 (excluding 2020 Special epidemic year). According to the media, Macy’s warehouses are currently filled with sportswear and casual clothes. The inventory of Walmart in the United States increased by about 33% in the first quarter. As of the end of April, the inventory of the Gap brand increased by 34% year-on-year, and the inventory of American Eagle increased year-on-year. 46%. It is expected that subsequent US apparel orders will be significantly reduced. The first reason is that there were early concerns about logistical difficulties and overbooked orders being difficult to digest. The second reason is that consumer confidence has hit a low point. The Michigan consumer confidence index began to decline in April 2021 and fell to its lowest level in history in June 2022, falling below Low in 1980.
2. The differentiation of textile and clothing production in Southeast Asia
High cotton prices in India have caused a sharp drop in the operating rate. High cotton prices in India have led to a decline in profits of yarn mills. Recently, the operating rate of most factories in India has dropped to less than 50%, and some even only 10%. After the international cotton price fell, cotton sales in India were hindered, and cotton yarn prices accelerated their decline.
Orders from Vietnam are pouring in. According to Vietnamese media reports in early June, Vietnamese clothing orders have been scheduled until the end of the year, but some manufacturers are afraid to accept new orders in the short term due to shortages of labor and raw materials, and have stopped accepting orders before the third quarter.
3. Cotton will grow smoothly in the main producing countries of the northern hemisphere in 2022
Monsoon rains in India have intensified, and new cotton planting is expected to speed up. The current monsoon rains in India have covered more than half of the country, and the monsoon rainy weather is conducive to farmers speeding up cotton planting. According to the forecast of the Cotton Association of India, the cotton planting area in India will reach 13.3-13.5 million hectares this year, a year-on-year increase of 12%.
The actual sown area of US cotton has increased and its growth is relatively smooth. The actual sown area of cotton in the United States in 2022 will be 12.5 million acres, a year-on-year increase of 11%, which is higher than the 12.3 million acres of intended area released in March. Cut off��On June 19, 2022, the US cotton sowing progress was 96%, the budding rate was 22%, and the boll setting rate was 6%, which were 1 percentage point, 2 percentage points, and 2 percentage points higher than the same period last year respectively. If the weather is relatively normal in the later period, there is still room for an increase in U.S. cotton production.
(2) Global cotton consumption in 2022 is overestimated, and structural differentiation may continue
In June 2022, the International Cotton Advisory Committee (ICAC) released the 2022 global cotton production, sales and inventory forecast data for the first time, showing that in 2022, global cotton production will be 26.13 million tons, a year-on-year increase of 0.9%, and consumption will be 26.09 million tons, a year-on-year decrease of 0.3%. , production exceeded demand by only 40,000 tons, and the inventory-to-consumption ratio at the end of the period was 78.1%, a year-on-year increase of 0.36 percentage points. Considering that the global economic growth continues to slow down and cotton consumption is facing shrinkage, we believe that ICAC’s estimate of global cotton consumption of 26.09 million tons is relatively optimistic, exceeding the pre-epidemic level in 2018/19 and significantly higher than the reality of weak consumption. Needs downward revision. If cotton prices cannot meet actual demand, the Chinese and Indian markets will still face high-cost dilemmas, Vietnam’s textile and apparel processing will still have a comparative advantage, and the Southeast Asian market differentiation will continue.
3. Domestic cotton supply is more abundant, and weak consumption is difficult to stop.
(1) Recent domestic cotton supply and demand situation
1. The United States has implemented a ban on Xinjiang-related products, and my country’s textile and clothing exports are facing difficulties.
Affected by the U.S.’s comprehensive ban on Xinjiang-related products, domestic textile export companies are currently encountering difficulties such as being required to stop using Xinjiang cotton, provide certification materials, and have foreign trade orders cancelled. From January to April 2022, the proportion of U.S. imported textile and apparel imports from China accounted for 25.9%, a year-on-year decrease of 5 percentage points, while the proportion of imports from Vietnam, India, Bangladesh and Indonesia increased by 1.6, 0.9, 2.1 and 1.2 percentage points respectively. At present, some export companies have gradually shifted from overseas markets to domestic sales markets, and some companies have adjusted their product mix and switched to blended chemical fiber products, or purchased real estate cotton or imported cotton raw materials.
2. Domestic demand for textiles and clothing continues to grow negatively
Affected by factors such as the COVID-19 epidemic, domestic clothing retail sales continue to decline. According to data from the National Bureau of Statistics, in May 2022, the domestic retail sales of clothing, shoes, hats, needles and textiles above designated size dropped sharply by 16.20% year-on-year, with negative growth for three consecutive months. From January to May, online clothing sales continued to decline year-on-year, with a decrease of 1.6%. %.
3. Lint trade has shrunk rapidly, and the stalemate game between upstream and downstream continues.
As cotton prices have fallen sharply, textile companies have become more cautious in purchasing. Some cotton companies in Xinjiang have suspended sales, and cotton trading volume has shrunk significantly. According to wind data, as of the end of May 2022, the national cotton commercial inventory was approximately 4.163 million tons, a year-on-year increase of 585,000 tons. According to data from the National Cotton Market Monitoring System, as of June 30, cotton processing enterprises had sold a total of 3.687 million tons of cotton in 2021, a year-on-year decrease of 2.21 million tons, and the sales progress was 63.5%, a year-on-year decrease of 35.5 percentage points.
(2) Domestic cotton consumption in 2021 will drop significantly year-on-year, and output in 2022 will increase month-on-month
Based on relevant special investigations and analysis of domestic and foreign economic environments and market conditions, this issue of the National Cotton Market Monitoring System has made the following adjustments to China’s cotton production, sales and inventories in 2021 and 2022:
In this period, China’s cotton consumption in 2021 is reduced by 340,000 tons to 7.7 million tons, a year-on-year decrease of 910,000 tons, a decrease of 10.6%; the import volume is reduced by 75,000 tons to 1.851 million tons, a year-on-year decrease of 896,000 tons, a decrease of 32.6%; cotton The output remained at 5.801 million tons in the previous period, a year-on-year decrease of 149,000 tons, or 2.5%. The inventory-to-consumption ratio was 80.70%, a year-on-year increase of 7.41 percentage points.
In this issue, China’s cotton production in 2022 is raised by 57,000 tons to 5.833 million tons, a year-on-year increase of 32,000 tons, an increase of 0.6%; cotton consumption is lowered by 340,000 tons to 7.8 million tons, a year-on-year increase of 100,000 tons, an increase of 1.3%, an increase The import volume was 215,000 tons to 2.05 million tons, a year-on-year increase of 199,000 tons, an increase of 10.8%, and the inventory-to-consumption ratio was 80.44%, a decrease of 0.26 percentage points from the previous year.
(3) Cotton market is driven downward
1. The recent rebound in cotton prices is unsustainable
In the short term, after the continuous sharp decline in cotton prices, there is a demand for a technical rebound. However, in the context of the contraction of the international financial environment, slowing economic growth, and squeezing the “bubble” of high commodity valuations, a downward trend in the center of gravity of cotton prices has taken shape. At present, the cotton downstream domestic demand market has not yet shown signs of recovery. Affected by the U.S. Xinjiang-related ban, my country’s textile and apparel exports have been hindered, and the rebound in cotton prices without downstream support is unsustainable.
2. The rush to harvest cotton in Xinjiang in the new year has cooled down
As cotton prices “dived” after the crazy rise, purchase prices in the new year are expected to decline. According to a survey by China Cotton Network, as of June 2022, 78% of the companies believe that the number of contracting companies in Xinjiang will be significantly reduced in the new year compared with the previous year. More than 70% of companies believe that high prices will not occur again in the new year. The market is optimistic about the new year. The purchase price of seed cotton is expected to drop significantly to less than 8 yuan/kg.
in conclusion
To sum up, global inflation is currently at a high fever, and the economy is facing the risk of slowing growth or even recession. The Federal Reserve continues to raise interest rates to curb inflation. The international financial market is in a high-risk period of violent fluctuations, and the cotton market cannot be immune. The current global cotton demand outlook is shrinking, and overseas textile and apparel inventories are also continuing to accumulate. China’s current external environment is complex, textile and apparel exports face many risks and challenges, and domestic cotton consumption is also under pressure to reduce. There are only two months left before the new year, and there are no major weather disasters. New cotton supply pressure will follow, and cotton prices are expected to fall rapidly in the new year. After the recent high fall in cotton prices, the upstream and downstream are still in a stalemate. From a theoretical perspective, the current cotton price level is still a certain distance from actual consumption, and there is still a certain degree of downward pressure. All parties need to respond rationally to ensure the smooth operation of the industrial chain.
in conclusion
To sum up, global inflation is currently at a high fever, and the economy is facing the risk of slowing growth or even recession. The Federal Reserve continues to raise interest rates to curb inflation. The international financial market is in a high-risk period of violent fluctuations, and the cotton market cannot be immune. The current global cotton demand outlook is shrinking, and overseas textile and apparel inventories are also continuing to accumulate. China’s current external environment is complex, textile and apparel exports face many risks and challenges, and domestic cotton consumption is also under pressure to reduce. There are only two months left before the new year, and there are no major weather disasters. New cotton supply pressure will follow, and cotton prices are expected to fall rapidly in the new year. After the recent high fall in cotton prices, the upstream and downstream are still in a stalemate. From a theoretical perspective, the current cotton price level is still a certain distance from actual consumption, and there is still a certain degree of downward pressure. All parties need to respond rationally to ensure the smooth operation of the industrial chain.
</p
