Market Analysis: Cotton Demand In Cotton Yarn Warehouse Before The Festival Exceeded Market Expectations

The recent trend of American cotton is strong, and it has successfully stood on the 60 day moving average technically; The global demand for cotton textiles has slightly improved, but it is still generally so. The export demand of American cotton in the future is still the key to guide the price; The demand for replenishment before the Spring Festival in China exceeded the market expectation, but the demand also weakened slightly near the Spring Festival. The market is also alert to the risk of demand falling back after the festival. There are many differences about this rise. Therefore, for the rise of Zheng Mian, the fundamental support is still facing a big test, or periodic market, and the demand performance will continue to be concerned.

In the supply and demand report in January, the U.S. Department of Agriculture continued to reduce global cotton consumption. USDA has reduced global consumption for five consecutive months, and global consumption has also reached a low position in recent years. It is expected that the space for further reduction will be limited. Recently, the start-up of major textile exporting countries has improved. Since December last year, China has started the replenishment before the Spring Festival, The demand for cotton yarn was better than the market expectation, and the cotton yarn inventory of textile enterprises fell sharply from a high level; Internationally, Vietnam, India and Pakistan have also seen a different degree of improvement in the recent boot rate, and the international demand for cotton procurement has also recovered, although not very much.

In terms of cotton exporting countries, the output of American cotton in 23/24 was the lowest in nearly a decade (the high output of Brazil and Australia, combined with the general performance of global consumption, reduced the impact of American cotton production reduction), which gave some support to cotton prices. China has increased its purchase of American cotton in the recent month, and the progress of American cotton signing will start to accelerate after the beginning of December 2023, China is the first main force of procurement; Brazil's exports increased significantly in December. In December 2023, Brazil's cotton exports reached 351000 tons, an increase of 38.3% month on month and 99.3% year on year. The export volume is only second to December 2020; As of December, Brazilian cotton exports in this year (from July 2023 to June 2024) totaled 1.193 million tons, up 22.8% year on year.

Technically, the US cotton index has stood on the 60 day moving average, and the recent trend is strong. Although from a fundamental point of view, we can't see the trend of the US cotton market for the time being, we need to be alert to the US cotton market or the periodic strong market.

Since December 2023, the demand for downstream cotton yarn has begun to improve. The cotton yarn inventory of textile enterprises has been continuously depleted, and the demand for downstream cotton yarn has improved. Generally speaking, there will be a small peak season of demand before the Spring Festival. The market also reflects that some orders for external demand have been issued in the previous period. Weaving mills have a good demand for cotton yarn procurement, especially for high count yarns; After a period of continuous replenishment, the cotton yarn raw material inventory of the weaving mill has reached a high level. The demand for cotton yarn has indeed weakened before the Spring Festival, but it is still fair on the whole; The biggest concern of the market for the future market is still the sustainability of demand. After all, it is the peak period of new cotton supply, and the cotton supply is sufficient. Recently, a large number of imported cotton has also arrived in Hong Kong. In general, the supply of cotton raw materials is not short.

The cotton yarn inventory of textile enterprises has been continuously reduced, and the inventory has reached a low position; As of December 2023, the monthly inventory of cotton yarn has begun to decline from a high level, but the absolute value is still high. It is expected that the inventory will continue to decline in January. At present, the most difficult point in the market is the sustainability of demand. If the demand can continue after the Spring Festival, the downstream will have enough power to undertake the rising cotton prices. The final demand situation still needs time to verify. There was a similar market last year. In January 2023, Zheng Mian also rose continuously, mainly driven by the demand for replenishment before the Spring Festival, and the optimism after the full liberalization of the domestic epidemic. However, after the 2023 Spring Festival, the demand was less than expected, and the price corrected. The market was also cautious about the demand after the 2024 Spring Festival. Therefore, for the rise of Zheng Mian this time, I think that the support of the fundamentals is general, and the approximate rate is mainly a phased market. At the same time, I continue to pay attention to the performance of demand.