Demand Is Not Obvious, Cotton Price Upward Space Is Limited

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Unexpected increase in US cotton production

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As the abandonment rate rose from 16% to 24% in the United States, cotton yield per unit area increased by 14% from last year to a record high of 938 lb / acre, and the final yield was estimated to be 1.82 million bales higher than last month. This is far beyond market estimates. Prior to this, due to drought and hurricane in Texas, the market generally expected that the U.S. agricultural report in August will reduce the U.S. cotton production forecast. According to the latest statistics of India's Ministry of agriculture, as of August 14, India's cotton planting area was 12.548 million hectares, an increase of 3.2% year-on-year. Affected by this, India's domestic cotton production forecast has also been increased by 1.2 million bales; at the same time, the US agricultural report also reduced India's domestic cotton consumption by 500000 bales and increased India's domestic cotton final inventory by 1.2 million bales.

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In 2020 / 21, global production is expected to increase by 1.3 million bales on a month on month basis, while consumption is estimated to decrease by 1.2 million bales. The decrease in India, China, Pakistan, Brazil and Indonesia offsets the increase in Bangladesh and Turkey. Inventory at the end of the period is estimated to increase by 2.1 million bales month on month. Compared with the previous year, the global cotton production is expected to increase by 5.46 million bales, an increase of 4.4%; the consumption is expected to increase by 10.65 million bales, an increase of 10.4%; due to the substantial increase of initial inventory, the global cotton final inventory will increase by 4.35 million bales. The overall supply and demand is slightly loose.

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According to the U.S. cotton production report released by the U.S. Department of agriculture on August 17, 2020, as of August 16, 2020, 45% of the U.S. cotton growth has reached a good level, an increase of 3% compared with the previous week and a decrease of 4% compared with the same period last year. The excellent and good rate of Dezhou was 27%, increased by 5% compared with the previous week, and the poor seedling rate was 33%, which decreased by 2% compared with the previous week. Compared with previous years, the excellent rate of cotton growth in the United States is at a low level in recent years, which is close to that of 2018 grandmother. At present, the new cotton is in the critical period of growth, and the yield still has great changes.

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Demand recovered slowly after the outbreak

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According to relevant data, the purchasing manager's index of domestic cotton textile industry stabilized for three consecutive months, with the value of 47.18 in July. Among them, the new order index fell by 2.62 on a month on month basis, while the output and operating rate index showed an upward trend, with an increase of 2.71 and 0.72, respectively.

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In terms of terminal sales, due to the traditional seasonal off-season in China, the sales are relatively general; with the recovery after the epidemic, textile and clothing exports continue to increase month on month. In July, the total retail sales of consumer goods decreased by 1.1% year-on-year, 0.7% less than that of last month. Among them, the retail sales of textile and clothing terminal decreased by 2.5% year-on-year, 2.4% higher than that of last month. From January to July, the total retail sales of consumer goods decreased by 9.9 and that of textiles and clothing by 17.5. According to the latest statistics of the General Administration of Customs of China, in July 2020, China's textile and clothing export volume was 31.294 billion US dollars, a month on month increase of 7.79%. Among them, the export volume of textiles was 15.976.9 billion US dollars, down 1.11% month on month; the export volume of clothing (including clothing and clothing accessories) was 15.3175 billion US dollars, an increase of 18.97% on a month on month basis. From January to July of 2020, China's textile and clothing exports amounted to 156.482 billion US dollars, an increase of 5.57% over the same period of last year, of which the cumulative export of textiles was US $90.080.4 billion, with a year-on-year increase of 31.25%; and that of clothing was 66.402 billion US dollars, a year-on-year decrease of 16.58%.

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At the end of the seasonal off-season, the recovery is not obvious

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According to the seasonal experience of previous years, it is at the end of the domestic seasonal off-season. However, due to the special situation of the new crown this year, "seasonality" may be affected. From the downstream start-up rate, starting this week, yarn and grey cloth boot rate stabilized. The start-up rate of domestic cotton mills began to decline in June, while the reduction of starting rate of green cloth mills was about a week later than that of cotton mills. As of this Wednesday, the load index of starting rate of domestic cotton mills and grey cloth mills were 48.7 and 45.2 respectively, but it is still unable to prove whether the starting rate can stabilize or stop falling. In terms of product inventory, grey fabric inventory began to decline in late July, while yarn inventory began to decline from early August. Both inventory levels were in a downward channel, but still at a high level in the same period in recent years.

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Domestic prices began to rise in April following the fluctuation of cotton futures prices. The 328 cotton price index reported 12466 yuan / ton on Wednesday and increased by 1260 yuan / ton since April. In the same period, affected by the shrinkage of downstream consumption, domestic yarn prices showed a fluctuating downward trend. The c32s yarn price index reported 18500 yuan / ton on Wednesday and dropped 1300 yuan / ton since April. The rise of raw material price and the decrease of finished product price lead to the continuous compression of the profit of the mill.

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With the recovery of the epidemic situation, the demand for cotton in all countries has rebounded, but the recovery speed is slow. Domestic textile industry profit further compression, is still in the stage of price reduction and inventory, seasonal recovery is not obvious, support for cotton price is relatively limited. At present, it is in the critical period of cotton growth in the northern hemisphere. According to the data from the US agricultural report in August, the overall supply and demand is slightly loose. However, there is still a close attention to the possibility of higher cotton yield in the late period.

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