Market Situation: Can The Subsequent Rebound Of Cotton Price Market Continue

Since last Thursday, cotton prices have rebounded after nearly a month of decline, and the short-term short selling strategy of cotton in the early stage has successfully ended its profit, and cotton prices have recovered for six consecutive trading days. So, what is the reason for the recent price rebound? Has the current fundamental situation changed? Can the subsequent rebound in cotton prices continue?

Reason for rebound:

There are two main reasons for the recent rebound in cotton prices.

First, the recent recovery of the domestic external macro environment, the improved data in April and the release of favorable policies on real estate led to a rebound in commodity prices. Cotton production enterprises are more active in sales and willing to support prices.

Second, the cotton domestic market is closely linked to the international market, and changes in the external market affect the internal market trend. At present, the United States and India are in the stage of cotton planting, and their continuous wet weather may have an impact on cotton planting and output. The speculation of weather factors has helped to increase cotton prices. At the same time, after American cotton prices continued to fall sharply for a long time, the market appeared to be bullish. Some investors bought on bargain. American cotton may find support near 75 cents/pound, and the future price will be adjusted and repaired.

Supply and demand analysis:

So, can the positive factors that helped the price rebound this time improve the current supply and demand pattern at home and abroad?

In terms of the international market, according to the data released by USDA, the planting rate of American cotton is 33% at present, higher than the average in recent five years, and the planting is smooth; At the same time, Brazilian cotton and Australian cotton are gradually on the market, with sufficient supply. The short-term weather factors are easy to digest, and will not have a great impact on the domestic production of the main products. In the case of increased supply, consumption did not improve, and the demand of major textile countries in the world was still weak, which suppressed cotton prices. According to the supply-demand balance table estimated by USDA in May, global output and consumption will increase in 2024/25, but the output growth is expected to be higher than consumption, and the overall data is neutral and empty.

From the perspective of the domestic market, despite the basic seasonal shutdown of domestic ginning plants, due to China's massive imports of American cotton in April (the import volume increased by 309.28% compared with the same period last year), the supply side is sufficient, which puts a great pressure on upstream enterprises. Despite the improvement of the macro environment, the downstream demand side is still weak. Textile enterprises report that at present, orders are scarce and prices are generally depressed, and the enthusiasm of enterprises to accept orders is not high. At the same time, small and medium-sized textile enterprises generally carry out inventory production, but the cotton yarn delivery speed is slow, which makes the demand for cotton purchased by textile enterprises not high, and the current price of cotton has fallen sharply for two consecutive days.

Future prospects:

In general, both the international market and the domestic market are in the status of adequate supply and weak demand, and cotton prices are weak for a long time. After the 3.93% jump in the last trading day, the price of American cotton fell again in the latest trading day and night, and the upward momentum of cotton price was insufficient. The similar supply and demand pattern in the domestic and international markets may also indicate that the cotton price has not yet stabilized. In the absence of a clear bullish signal, the future price may fluctuate. However, there are large variables in subsequent exports and consumption, and its impact needs to be gradually confirmed over time.