Market Dynamics: Cotton Prices Hit A New Annual Low. Whether The Market Can Rebound In The Future Is Expected

Since July, both the actual and expected supply of domestic supply side has been abundant, while the demand side has not improved significantly; The global cotton production increase is expected to be relatively strong. In the second half of the month, the contracted volume of American cotton fell sharply for two consecutive weeks, hitting an annual low. The loose supply and demand pattern was further verified, and the cotton prices at home and abroad fell again to the lowest point in the year. According to the commodity market analysis system of the business community, the spot price of 3128B lint on July 31 was 15399 yuan/ton, down 2.65% month on month %。

In terms of futures, the price of American cotton fell more than that of Zheng cotton in July. Under the internal and external linkage, both domestic and foreign cotton prices hit new annual lows, breaking the key support level. In July, the decline of Zheng Mian's main contract expanded, falling below the four thousand mark to 13990 yuan/ton, a new low in 15 months. As of the 30th, the settlement price of Zheng Mian's main contract was 14115, down 3.75% from the beginning of the month. The December contract of ICE cotton continued to operate below the price after falling below 70 cents, the lowest since October 2020. As of the 30th, the settlement price of the main contract of ICE cotton futures was 69.55, down 4.86% from the beginning of the month.

Reasons for market decline:

Imbalance between domestic supply and demand: according to the national cotton market monitoring system, the cotton consumption in 2024/25 is predicted to be 8.1 million tons, and the consumption of new cotton before the market is expected to be 1.35 million tons in October this year. According to statistics, as of July 26, the total commercial inventory of cotton is 2.4602 million tons, and the existing inventory is sufficient to cover the consumption and is relatively abundant. The import of cotton expanded. In the first half of the year, China imported 1.8 million tons of cotton, an increase of 210% year on year. The expected high yield of cotton in the new year is optimistic, and the market is pessimistic about the future market.

Since July, the cotton textile market at home and abroad is still in the off-season, and new orders are limited. Textile enterprises continue to purchase cotton on demand. According to the recent survey of the national cotton market monitoring system, the overall order situation of the downstream textile market has not improved significantly, except for a few varieties of yarn orders. As of July 25, the national cotton cumulative sales rate was 87.5%, 1.8 percentage points lower than the average of the past four years. With the fall of cotton and yarn prices in downstream demand, some textile enterprises have increased difficulty in loss making production and sales Under the support of high temperature and humidity weather, textile enterprises in the Yangtze River basin choose to take high-temperature leave more often, and the overall production and sales are still in a state of contraction.

Trade protection frequently appears on the terminal, and the prospect of textile and clothing export is worrying. After the United States, Malaysia, Thailand, Brazil and other countries have successively tightened the "small amount exemption" policy, the European Commission also plans to cancel the tax exemption threshold for small amount commodities below 150 euros. Export orders of cross-border e-commerce platforms for textiles and clothing are bound to be affected, leading to upstream cotton, cotton yarn (20235, -80.00, -0.39%).

Internationally: under the influence of the negative industrial fundamentals of the new year, which are productive on the supply side and difficult to improve on the demand side in the short term, as well as the macro sentiment brought about by the US election, cotton prices quickly broke down. In the second half of July, some American cotton producing areas received rainfall, which eased the drought and was conducive to cotton growth. The expected supply of American cotton increased. At the same time, the export volume of Brazilian cotton increased significantly year on year, competing with American cotton for the international market. According to customs data, the average sales price of Brazilian cotton in 2023/24 is 89.48 cents/pound, 3% lower than the average price of American cotton, and the price difference is 2% larger than that of last year, further showing the price advantage.

Will the market be favorable in August?

From the perspective of the domestic market situation: at the industrial level, cotton in Xinjiang is growing well at present, with a relatively strong expectation of high yield, and the purchase price is expected to be weak in the new year, which is difficult to support the price. However, there are still risks in the critical growth period of cotton. According to the prediction of the meteorological department, the temperature in most areas of Xinjiang in July August is higher than that in the whole year, and the precipitation is less than that in the whole year. Cotton growth is still facing drought risks; The Yellow River basin and the Yangtze River basin enter the flood season, and some cotton areas are facing the risk of flooding. In addition, no clear policy has been announced on whether the quota will be issued and whether the reserve cotton will be rotated this year, so it will have a greater uncertainty impact on the future cotton price.

Demand level: although the off-season characteristics are obvious, textile enterprises in Henan and other places feedback that the sampling of low and medium count yarn orders has increased in recent autumn, and enterprises consider that downstream stock replenishment may occur in August, so the situation of slightly increasing the startup rate for inventory production has also emerged.

On the domestic market as a whole, with the cotton growth entering a critical period and the textile market's off-season gradually approaching the end, supported by factors such as increased weather risks and the slow start of downstream stocking, the cotton price is expected to gradually stabilize.

From the perspective of the international market, cotton prices in July fell rapidly, digesting some of the bad news on the industrial side. After the mood is released, it is unlikely that American Cotton will continue to fall, but it is difficult to rebound significantly in the short term. It is expected that the market is in a low level of shock operation. Attention should be paid to the weather in the main producing countries and the recovery of global consumption.