http://www.texnet.com.cn/ May 24, 2024 08:57:29 Source: China Cotton Network

Since May, the domestic cotton market has experienced loose supply, and the downstream textile market has shown signs of off-season characteristics. Capital inflows have accelerated the downward trend of Zheng cotton. Under the expectation of weakened domestic and external demand, cotton prices continue to be under pressure, and the market may need more positive news from the supply side to overcome the downturn.

Part 1 Market Review

Since late April, the global textile and clothing market has shown signs of off-season, with domestic and international cotton prices falling. As of May 22nd, The settlement price of ICE cotton futures main contract is 79.38 cents/pound, a decrease of 3.7% month on month; The international cotton index (M) representing the average landed price of imported cotton from China's main port is 83.02 cents per pound, which is equivalent to the import cost in RMB 14311 yuan per ton (1% tariff, excluding port charges), a decrease of 7% compared to the previous month. The settlement price of the main cotton futures contract on Zhengzhou Commodity Exchange was 15365 yuan/ton, a decrease of 3.1% month on month; The national cotton price B index, representing the market price of standard grade cotton in mainland China, is 16343 yuan/ton, a decrease of 3% compared to the previous month.

Part 2 Analysis and Outlook

1、 Global cotton consumption recovery is weak, with good weather increasing expectations for high yields

The overseas consumption environment is becoming increasingly weak. In May, the Federal Reserve and the Bank of England kept their benchmark interest rates unchanged, and Federal Reserve officials claimed that it may take longer to observe data to confirm the window for rate cuts. As a result, consumer confidence among American residents has continued to decline. According to data from the World Federation of Large Enterprises, the US Consumer Confidence Index fell to 97 in April, the lowest level since July 2022. In March, the import value of textiles and clothing in the United States was 8.5 billion US dollars, a decrease of 1.52% month on month and 1.06% year-on-year.

There is insufficient demand for cotton spinning in the Southeast Asian market. The expected demand for restocking in the US and European end markets has yet to arrive, and as of March, the inventory consumption ratio of US clothing and clothing fabric wholesalers has remained at a level of 2.32 for three consecutive months. Since late April, the recovery momentum of the main textile and clothing export markets has been insufficient, and cotton yarn prices in India, Vietnam, and Pakistan have gradually decreased, attempting to stimulate international buyers to sign contracts and purchase by increasing discounts. According to the statistics of the U.S. Department of Agriculture, as of May 9, the cumulative shipment volume of U.S. cotton exports in 2023/24 was 1.94 million tons. From the perspective of the proportion of exports in U.S. cotton output, among the top five export destinations, only China's export progress grew year-on-year, while the cotton flower export progress slowed down 1.7, 3.2, and 2.2 percentage points respectively to Pakistan, Vietnam, and Türkiye. The export progress to Mexico was basically flat, and cotton consumption demand remained low.

The weather in the main producing country is favorable for cotton planting and growth. According to a report from the US Department of Agriculture, as of the end of April, the proportion of cotton growing areas in the United States affected by drought was 8%, a significant decrease from 45% in the same period last year and at a historical low. It is expected that the probability of a significant increase in cotton production in the United States is high. As of the week ending May 19th, the cotton planting rate in the United States was 44%, an increase of 2 percentage points from the same period last year. The cotton processing in India for the 2023/24 fiscal year has not yet ended. According to the Indian Cotton Association, as of May 15th, the cumulative market volume was 4.883 million tons, accounting for 92.7% of the expected production. Due to previous rainfall and low temperatures, cotton planting in Pakistan has been slightly delayed this year. Currently, temperatures have risen and cotton planting is underway. Last month, Mato Grosso state in Brazil experienced a mild drought, while rainfall and temperature in Bahia state remained at normal levels, which is conducive to cotton cultivation. The Brazilian National Commodity Supply Company predicts that the cotton production for 2023/24 is expected to be 3.644 million tons, an increase of 14.8% year-on-year.

The US Department of Agriculture's May supply and demand forecast is bearish. According to the US Department of Agriculture's supply and demand report, the global cotton production for the year 2024/25 is expected to be 25.92 million tons, an increase of 1.19 million tons year-on-year; The consumption of cotton was 25.44 million tons, an increase of 760000 tons year-on-year. The increase in cotton production far exceeds the increase in consumption, and the cotton supply situation has been relaxed compared to this year (see Table 1 for details).

2、 Insufficient domestic consumer demand, increasing pressure on cotton sales

Insufficient domestic consumer demand. On April 30th, the Political Bureau of the Central Committee of the Communist Party of China held a meeting, which pointed out that effective demand is still insufficient, enterprise management pressure is high, there are many risks and hidden dangers in key areas, the domestic circulation is not smooth enough, and the complexity, severity, and uncertainty of the external environment are still challenges facing domestic economic development. The consumption data during the May Day holiday confirms the overall cautious consumption tendency of residents. Although the number of trips and total expenses have increased significantly compared to 2019, the per capita consumption is only 88.5% of the same period in 2019, indicating that residents' consumption willingness and ability still need to be restored.

The pressure on cotton sales is not decreasing. In May, the domestic cotton textile market entered the traditional off-season, and domestic enterprises performed poorly in both new domestic and export orders. After the rapid decline in cotton futures prices, companies have a stronger wait-and-see mentality. According to data from the General Administration of Customs of China, China's textile and clothing exports in April amounted to 23.93 billion US dollars, a year-on-year decrease of 3.1%. According to feedback from downstream markets, the shipment of weaving factories has slowed down, and there is an upward trend in enterprise cotton yarn inventory. The production of blended fabrics has increased, leading to a pessimistic outlook for the future market. According to data from the National Cotton Market Monitoring System, as of May 16, 2023/24, the national lint sales rate was 74.7%, a year-on-year decrease of 11.2 percentage points. It is estimated that the cumulative sales of lint nationwide were 4.412 million tons, a year-on-year decrease of 1.36 million tons, a decrease of 362000 tons compared to the average of the past four years, and the overall sales progress is still slow. In addition, the current imported cotton and cotton yarn prices have advantages over domestic prices. As of April 2023/24, China has imported a total of 2.49 million tons of cotton, a year-on-year increase of about 162.1%, and imported 1.2 million tons of cotton yarn, a year-on-year increase of 66.7%. The sales pressure of domestic cotton remains unchanged.

The first release of domestic cotton production and demand balance for the year 2024/25. According to a survey by the National Cotton Market Monitoring System, the intended planting area of cotton in China in 2024 was 40.499 million mu, a year-on-year decrease of 903000 mu, a decrease of 2.2%. According to the average yield level of the past six years, China's cotton production in 2024/25 was 5.67 million tons, a year-on-year decrease of 230000 tons. According to recent research conducted by the National Cotton Market Monitoring System in Xinjiang, the cotton planting period this year has not been affected by widespread extreme weather. The emergence rate of cotton is relatively high, and the growth condition is significantly better than the same period last year. Cotton farmers have strong expectations for an increase in cotton yield, and will further pay attention to the growth situation of cotton in the later stage. Expected cotton consumption is 8.1 million tons, an increase of 100000 tons year-on-year; The import volume was 2.43 million tons, a year-on-year decrease of 220000 tons; The export volume is 30000 tons, an increase of 10000 tons year-on-year; The ending inventory was 6.22 million tons, a year-on-year decrease of 30000 tons; The final inventory consumption ratio was 76.5%, a year-on-year decrease of 1.38 percentage points (see Table 2 for details).

Part 3 Main Conclusion

In terms of macroeconomics, it is expected that the global economy will continue to be affected by geopolitical conflicts such as Russia, Ukraine, and Palestine Israel for a long time. Meanwhile, there are also signs of escalation in international trade frictions in the near future. The announcement by the Office of the United States Trade Representative to launch a 301 investigation into China's maritime, logistics, and shipbuilding industries deserves close attention. Currently, it cannot be ruled out that the United States is inciting its allies to take similar actions against our country. In terms of the cotton market, in the long run, due to the strong expectation of a significant increase in global cotton production in the new year, the strength of cotton prices depends on whether there is a significant increase in consumer demand, and the growth of cotton consumption demand depends on the growth of the global economy and the improvement of the international trade environment. Based on the current situation, it is difficult to increase the demand for cotton consumption. By the end of this year, with the gradual reduction of commercial cotton inventory, especially the decrease in the quantity of high-quality cotton, cotton prices are expected to gradually gain support. Meanwhile, considering that the continuous decline in domestic and international cotton prices over the past month has released bearish factors, it is expected that there is relatively limited room for further decline.