U.S. cotton continued to fall sharply this week, Zheng cotton maintained a narrow oscillation trend, and domestic and foreign cotton prices diverged. The recent weak demand and high cotton yarn inventories continue to form negative feedback to the upstream. Coupled with the sales of reserve cotton and the increase in imports, cotton prices have fallen.
As of November 8, Xinjiang’s cumulative lint processing volume was 1.9603 million tons, a year-on-year increase of 52.99%, basically the same as in 2021/2022 (the processing pace last year was slow). At present, the mainstream purchase price of machine-picked cotton in Xinjiang is 7.2-7.5 yuan/kg, and the probability of falling below 7 yuan/kg is very small. The purchase price in northern Xinjiang has basically ended, and the purchase price in southern Xinjiang has exceeded half. The initial purchase price is high, but the quantity is not large. Overall, the cost of new cotton is 16,500-17,000 yuan/ton. At present, the cost of new cotton has strong support for the market price, which is also the reason why US cotton has plummeted recently, while domestic prices are relatively stable. In addition, the continuous decline of Zheng cotton in the early period also released the negative sentiment.
This week, the listed volume of reserve cotton has decreased. The daily listed volume is 12,000 tons. The transaction volume is average. From July 31 to November 8, the cumulative transaction volume is 860,000 tons, with an average transaction rate of 76.37% and an average transaction price of 17,848 yuan/ton. The volume of imported cotton has increased. In September, 235,600 tons were imported, an increase of 34.7% month-on-month and a year-on-year increase of 166%. The recent decline of US cotton has been even greater, and the price advantage of imported cotton has expanded. At present, downstream procurement is mainly based on rigid demand and is more inclined to reserve cotton and imported cotton. Textile companies are less willing to stock up.
The demand during the “Golden September and Silver Ten” peak seasons is less than expected, spinning profits continue to be in the red, cotton yarn traders have high inventories, and the price of pure cotton yarn has continued to fall recently, but demand has not yet improved. Textile companies have continued to reduce their operating rates, and some companies have even started to downtime. At present, the downstream has entered the traditional off-season, and the sluggish demand has formed a negative feedback on cotton prices, limiting the height of Zheng cotton’s rebound. Zheng cotton will also face new cotton hedging pressure if it rises to a certain height.
U.S. cotton production in 2023/2024 has dropped to a multi-year low. In the October USDA supply and demand report, U.S. cotton production continued to be lowered. The output in 2023/2024 was only 2.79 million tons, the lowest in the past 10 years. The latest weekly contracting data for U.S. cotton has improved. As of the week of October 26, 2023/2024 upland cotton weekly contracted 103,700 tons, an increase of 146%, of which 73,500 tons were signed in China; the total contracted volume of upland cotton and Pima cotton 1.5121 million tons, accounting for 57% of the annual forecast total export volume (2.66 million tons); the cumulative export shipment volume is 452,700 tons, accounting for 30% of the annual total contracted volume. The cumulative signing progress of U.S. cotton in 2023/2024 is at the lowest level in the past five years. In addition, global demand for textiles and apparel remains weak, and U.S. apparel inventories are still in an active destocking cycle. The world’s major textile and clothing exporting countries all performed generally. Only Bangladesh’s exports were outstanding, but its October textile and clothing export data also showed signs of weakening.
Brazil’s cotton production in 2023/2024 has increased significantly, and Australia’s production is also at a high level, weakening the impact of the U.S. cotton production reduction. Data show that Brazil’s annual output in 2023/2024 is estimated to be 3.17 million tons, a record high, and annual exports are 2.5691 million tons, an increase of 1.12 million tons from the previous year.
U.S. cotton has fallen sharply recently, and the market is waiting for the USDA supply and demand report in November. Pay attention to the US cotton output, as there are still variables in the output of other major producing countries. The Cotton Association of India (CAI) estimates India’s cotton production in 2023/2024 to be 5.017 million tons, a year-on-year decrease of 404,000 tons, or 7.5%, but the USDA’s estimate is still 5.44 million tons. It is expected that after the release of the USDA supply and demand report in November, US cotton may have a chance to stabilize and rebound.
To sum up, the price trend of US cotton needs to pay attention to the adjustment of supply and demand data. Since October, Zheng cotton has continued to fall and has maintained a narrow oscillation pattern in the near future. From a fundamental point of view, the medium-term market situation of Zheng cotton is still not optimistic, demand still needs to be boosted, high cotton yarn inventory, reserve cotton sales, etc. have suppressed prices, and the support mainly comes from the cost of new cotton. Pay attention to new cotton production and reserve cotton sales.
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