Market Observation: Weak Demand In Cotton Textile Industry Continues To Drag Cotton Prices Up

In the first half of this year, cotton textile downstream ushered in a wave of replenishment market at the beginning of the year, but the sustainability is not good. The order volume in peak season was lower than expected. Against the background of high inventory, the cotton yarn price fell first, and the cotton price continued to fluctuate under the expectation of low raw material inventory of textile enterprises and the decline of planting area in the new season. However, as the price difference of cotton yarn continued to shrink, the mainland textile enterprises continued to lose money, and Xinjiang cotton grew well in the new season. The downstream negative feedback phenomenon was transmitted to the cotton raw material end, and the cotton price also started a downward trend. From the perspective of historical prices, the current cotton price is at a low level, but why has it not rebounded significantly at home and abroad?

First, weak demand in the cotton textile industry continues to drag down cotton prices. From January to May 2024, the total retail sales of clothing in China will be 589.9 billion yuan, an increase of 1% year on year, and the total retail sales of clothing, shoes and hats, knitwear and textiles will be 430.68 billion yuan, an increase of 0.7% year on year, basically the same as last year. At present, the domestic downstream cotton textile industry is still in the off-season. In May, the purchasing managers' index of China's cotton textile industry was 38.55%, which is at a historical low level. From the perspective of sub items, in addition to high cotton yarn inventory, new orders, start-up rate, production volume and cotton inventory index all remain below the boom and bust line, and the load of gauze factories continues to decline to reduce output. At the same time, China's textile and clothing exports totaled US $115.982 billion over the same period, a year-on-year decrease of 1.89%, and export sales have not improved significantly. On the whole, the raw material inventory of the textile mill is at a historical low, and there may be some demand for replenishment later. Pay attention to the marginal degeneration of the downstream finished product inventory, while the terminal textile and clothing replenishment in the United States is gradually started. With the expectation of the Federal Reserve to cut interest rates delayed, the pace of replenishment slows down, and it still takes time for China's textile and clothing exports to further recover.

Secondly, the expectation of global high yield in the new year is the key factor restricting the rebound space of cotton prices. The survey results of the National Cotton Market Monitoring System in late May showed that the national cotton field area was 40.833 million mu, a year-on-year decrease of 1.4%, of which the Xinjiang cotton field area was 35.869 million mu, a year-on-year decrease of 1.4%. This year, although the sowing time was slightly delayed in some areas due to the windy and sandy weather in the early planting period, the sowing progress was accelerated with the improvement of mechanization level, and the overall temperature was high, and the accumulated temperature was higher than that of the same period last year. At present, cotton fields in various production areas have entered the peak bud stage, some cotton plants have seen blooming, and some cotton fields have seen diseases and pests such as aphids and red spiders in the early stage, but under the effective planting management such as pesticide spraying, there has not been a large-scale spread, and the unit yield in the new year is expected to increase year on year, paying attention to the impact of the continuous high temperature on the growth of cotton bolls.

Finally, after two years of drought in American cotton producing areas, the drought in the new year has been greatly alleviated. According to the latest monitoring data of drought in the United States, as of June 25, about 16% of cotton planting areas in the United States had been plagued by drought, and there had been no areas with extreme drought or above for 17 consecutive weeks. The report on the actual planting area of American cotton released by the U.S. Department of Agriculture at the end of June showed that the planting area of American cotton in the new year was expected to increase by 14% year-on-year to 11.67 million acres, higher than the market expectation. From the perspective of planting progress, as of June 23, the cotton planting progress in the United States was 94%, 1 percentage point ahead of the previous year, and 2 percentage points behind the average in recent five years; The budding rate in the United States is 30%, leading by 5 percentage points year on year, 2 percentage points higher than the average in recent five years; The bell closing rate in the United States was 8%, 4 percentage points ahead of the previous year, and 3 percentage points ahead of the average in recent five years. The overall progress is slightly faster, and from the perspective of cotton plant growth, the excellent rate of new cotton in the United States reached 56%, up 7 percentage points year on year, which is at a historical high. Therefore, the quality of new cotton is expected to pick up and the yield increase is expected to be strong. In addition, Brazilian cotton and Australian cotton, which are about to be centrally listed, are also in a pattern of high yield. According to the latest annual forecast issued by the Brazilian National Commodity Supply Company, the output of Brazilian cotton is expected to increase to 3657100 tons, a year-on-year increase of 15.37%, under the expansion of planting area, while the output of Australian cotton in the new year is expected to be nearly 1.1 million tons, a year-on-year decrease, but also at a historical high level.

To sum up, in the second half of the year, the characteristics of low consumption season continued. If the cotton sliding allowance tax import quota is lowered, the cotton internal and external price difference is expected to further converge. Before the peak season of "Golden Nine and Silver Ten", it is necessary to pay attention to the willingness of downstream factories to purchase raw materials, as well as the impact of the weather in the production area. Cotton may have a staged rebound. At the same time, the ginning plant's capacity is still in surplus in the new year. If the cotton price is low when weighing, "rush to harvest" will still occur. However, under the general pattern of strong supply and weak demand, the cotton price rebound may be high or limited. In the long run, under the expectation of global cotton production increase, if the demand side does not recover significantly, there is still greater pressure above the domestic and foreign cotton prices.