Market Analysis: Short-Term Domestic Cotton Prices Are Still In A Volatile Trend

Recently, cotton prices have maintained the trend of shock and fall, and there is no direct positive news for downstream demand. On August 5, the spot price of 3128B lint was 15376 yuan/ton, with a weekly decline of 0.54%.

Futures: Due to the expected warming of interest rate cut by the Federal Reserve in September, commodity market sentiment was boosted. American cotton rebounded sharply last Monday, but then the market fell in shock, and the domestic cotton price fell more than American cotton. As of May 5, the closing price of Zheng Mian's main contract was 13955, and the settlement price of ICE cotton's December contract was 67.78, both hitting new lows in the year.

Growth of new cotton at home and abroad: At present, the weather in most areas of Xinjiang is sunny, cotton bolls and peach trees are in good condition, and the new cotton yield is expected to be optimistic. In the first ten days of August, the high temperature weather continued in most areas of Xinjiang, which was conducive to the growth of flowers and bolls. The development process of new cotton was about a week earlier than last year.

The weekly crop growth report released by the United States Department of Agriculture (USDA) in the early hours of Tuesday showed that as of the week of August 4, the excellent cotton rate in the United States was 45%, 49% in the previous week and 41% in the same period last year. The boll setting rate of cotton was 60%, 54% the previous week and 58% the same period last year.

Landing of sliding allowance tax quota: according to the National Development and Reform Commission, the total amount of sliding allowance tax quota for cotton import in 2024 will be 200000 tons, all of which are non-state trade quotas, which are limited to processing trade imports. Compared with the quota of 750000 tons of imported cotton last year, this year's quota issuance is lower than the market expectation. This year's cotton is relatively sufficient before the new flowers come into the market. The domestic cotton market has sufficient supply of old crops, and the new cotton output is expected to be good, which has little impact on the cotton supply this year.

Downstream demand is weak: the overall turnover of pure cotton yarn market is still relatively light, large textile enterprises are selling at low prices, the market wait-and-see mood is rising, and the cotton yarn transaction center continues to decline. As the downstream textile market is still in the off-season, the demand is still low, and the operating rate of enterprises remains low. At the same time, due to the hot weather, some small and medium-sized textile enterprises take high temperature leave, and the enthusiasm for raw material procurement still needs to be restored. In August, the traditional textile peak season of "golden nine and silver ten" is getting closer and closer. According to the usual experience, there should be signs of recovery of product orders at this time, but from the current situation, downstream customer orders are still less than expected.

Future market forecast: At present, the domestic market supply is loose, the spot price of cotton is relatively stable as a whole, and spot transactions continue to remain light. Downstream textile enterprises are short of orders and need to replenish the stock when the price is low. Internationally, the impact of the recent interest rate cut by the Federal Reserve is expected to increase, which is good for the commodity market. However, in terms of industry, the demand side is still weak, and there are still uncertainties in the macro level. It is expected that the short-term domestic cotton price is still in a volatile trend, and pay attention to the downstream demand.