Market Analysis: Market Performance Is Expected To Continue To Fluctuate And Decline In Cotton Prices

After the cotton futures price hit 15000 yuan/ton at the end of January, it has continued to fluctuate downward since February. As of the close on February 15, the main contract of cotton futures was 14350 yuan/ton. From February 1 to February 15, the cumulative decline of the main contract of cotton futures reached 4.71%; In terms of spot goods, the price of domestic 3128B cotton fell from 15923 yuan/ton to 15643 yuan/ton, a decrease of 1.8%. On February 15, China's cotton price index was 15643 yuan/ton, 64 yuan/ton less than the previous trading day.

There are two main reasons for this,

First, since the epidemic prevention policy was continuously optimized in December last year, the market has a strong expectation for the recovery of consumer demand. As an important means of production, cotton orders before the year were OK, but after the gradual resumption of work after the year, new orders were limited. Some enterprises mainly focused on catching up with orders before the year, downstream demand recovered less than expected, and cotton prices began to fall back;

Second, the spinning profit of the factory itself is limited. With the continuous reduction of cotton prices, textile enterprises are becoming more cautious in purchasing. They are in a heavy wait-and-see mood and maintain small quantities of just needed purchases.

For the later trend, the interviewed experts and institutions are generally optimistic, believing that the space below the cotton price is limited, and it is expected to regain the upward trend after short-term adjustment.

According to the USDA's supply and demand report in February, from a global perspective, global cotton production and consumption will be reduced from 2022 to 2023, but the reduction in output will be greater than that in demand. Global cotton production decreased by 230000 tons month on month, and global consumption decreased by 50000 tons month on month.

Global cotton consumption has been reduced for seven consecutive months. With the implementation of the domestic "Class B management", the space for global consumption to continue to be significantly reduced is relatively limited, and there may be room for future consumption to be increased.

Cotton prices are mainly affected by supply and demand. From the supply side, the domestic sales of new cotton is still slow. According to the data of the national cotton monitoring system, as of February 9, the national lint sales rate was 33.7%, an increase of 1.9 percentage points year on year, but the total amount of lint to be sold was close to 4 million tons. The later sales pressure was great, and the short-term price was under pressure. In terms of demand, we should observe the release of final orders in the traditional peak season of "three gold, four silver".

As for the price trend of cotton futures in the later period, COFCO Futures believes that traders and spinning mills have gradually returned to normal with the help of a large number of price corrections to supplement the inventory. Low price raw materials will thicken spinning profits, which is conducive to the recovery and transmission of the whole industry chain, and the inventory of finished products will continue to decline. It is expected that the cotton futures market will be in the repair calf market, and the future market will resume its upward trend.

In the short term, demand is still the core issue surrounding the fluctuation of cotton prices. The market still has some expectations for the substantial recovery of demand in the "gold, three silver and four silver" peak season on a year-on-year basis, waiting for the centralized release of large quantities of orders in spring and summer, which is expected to drive the price increase.

It is estimated that there is not much space below the cotton price. The 14000 yuan/ton pass is also the psychological price of some mills, which has certain support. In the short term, because it still takes time for demand recovery and raw material replenishment is mainly just in demand, the actual profits still need to wait, and the cotton price has been adjusted by shocks; In the medium and long term, China's domestic demand recovery is expected to continue. If combined with the favorable factors at the planting end in 2023, the domestic cotton price is expected to rise.