Domestic cotton and cotton yarn prices fell sharply last Friday, with the main contracts falling by more than 3% during the session. Recently, affected by the rise in the U.S. dollar index, U.S. cotton prices have also fallen, from a high of 96 cents/pound to 90 cents/pound line. Will the rising trend of cotton prices change in the future? Let’s start with the fundamentals.
USDA lowers global ending stocks
According to the August global cotton supply and demand forecast report released by USDA, global cotton production and consumption in 2021/2022 will increase month-on-month, import and export trade volume will increase significantly, and ending stocks will decrease again. In recent months, USDA has continuously lowered cotton ending stocks. On the one hand, it is affected by weather factors and there are expectations of production cuts in the United States and Brazil. On the other hand, it is affected by improving consumption expectations. Overall, the global supply and demand pattern is still in the process of improvement, which will support cotton prices in the medium and long term.
The planting area in Xinjiang is expected to decrease
According to a survey by the China Cotton Information Network, the cotton sown area in Xinjiang in 2021 is expected to be 35.65 million acres, a decrease of 3.8% from the previous year; the output is expected to be 5.134 million tons, a decrease of 11.3% from the previous year. In August, the Alar region of Xinjiang suffered severe hail disaster, which means that cotton output may still be reduced in the future. The purchase of new cotton is expected to start in late September or early October, and the rush to harvest by ginners may not be able to be eliminated. The purchase price is expected to be 7.8-8 yuan/kg, which is equivalent to a market price of around 17,800 yuan/ton. Cost support makes it difficult for cotton prices to fall deeply.
Domestic consumption remains optimistic
At present, the raw material inventory of textile enterprises in Xinjiang and most areas in the mainland is relatively high, while the inventory of finished products is relatively low. Data show that the cotton inventory of textile companies has returned to 40 days, which is at a high level in the past five years. At the same time, the inventory of downstream finished yarn is at a low level, and orders need to be booked within 0-5 days. However, the inventory of gray fabrics remains huge and the demand is average. Generally speaking, textile companies have a high startup rate, acceptable production profits, and little operating pressure.
In addition, according to statistics from the General Administration of Customs of China, from January to July 2021, my country imported a total of 1.68 million tons of cotton, a cumulative year-on-year increase of 61.5%. During the same period, the export volume of textiles and clothing was US$168.352 billion, a year-on-year increase of 7.73%. Among them, clothing exports amounted to US$88.099 billion, a cumulative year-on-year increase of 32.89%. Domestic cotton imports maintained a growth momentum, and downstream export data of cotton yarn and clothing performed well.
Taken together, the downside space for cotton prices is limited, and the cost of new cotton will become an important factor affecting price trends. The main contract It is expected that there will be strong support at 17,500 yuan/ton.
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