This year’s cotton acquisition has come to an end and has entered the final stage at the end of the year. Most of the cotton processing by ginning enterprises has been completed. Looking back on the past few months, the cotton market price has fluctuated violently, which has had varying degrees of impact on both upstream and downstream companies. At present, under the situation of high costs and weak demand, market purchases and sales are fractured. Upstream and downstream companies hold different opinions. The market has entered a stalemate stage. This situation may remain for some time.
The high processing costs of cotton ginning companies have solidified, and the gap with the current market price is too large. This not only causes manufacturers to face widespread losses, but also discourages downstream markets, hindering the smooth circulation and consumption of cotton. According to feedback from many cotton manufacturers, the production cost of lint in 2021 will be around 23,000 yuan/ton, but the current price of raw materials that spinning companies can accept is mostly in the range of 21,000-21,500 yuan/ton. In previous years, most production companies were able to successfully unwind their spot inventories after futures prices provided hedging opportunities. However, this year’s spot prices were severely fragmented, causing ginning companies to lose their shipping opportunities. Moreover, the Zheng cotton contract was strong in the near future and weak in the far range. This makes cotton enterprises feel that there is little hope.
Manufacturers are facing difficulties, and spinning mills are also under heavy pressure. In previous years, around New Year’s Day, textile companies usually stock up to meet the demand for cotton during the Spring Festival holiday, but this year there is little news. First, domestic and foreign textile end-use consumption has peaked, resulting in insufficient follow-up of orders by textile companies and a decline in the motivation to restock raw materials. Second, the price difference between domestic and foreign cotton is too large. During the process of placing some foreign trade orders, domestic production costs are high and bidding power is reduced, forcing orders to be lost, and textile companies’ procurement focus turns to foreign cotton. Third, the emergence of the Omicron mutated strain has added variables to the development of the epidemic. The mentality of the domestic and foreign textile markets has tightened, resulting in a decline in consumption expectations.
The fundamentals of the cotton industry are unlikely to change in the short term. Structural inflationary pressure in global finance is relatively high, the United States is cautious in raising interest rates, and in the face of weakening domestic demand and increasing downward pressure on the economy, domestic reverse easing monetary policy control will reduce macro market risks and achieve stable economic development. Therefore, regardless of the macro market or micro industry, the stalemate in the cotton market is difficult to change, or it may have entered a period of calm.
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