Market Analysis: The Market Supply Pressure Of Cotton Market Is Still High Due To Oversupply

At present, China's cotton supply comes from three aspects:

First, the commercial inventory of cotton; Second, the supply of imported cotton; Third, the expected supply of new cotton.

At present, the level of commercial inventory in China is on the high side. According to the data released by the market in August, the commercial inventory of cotton in China was 2.7782 million tons by the end of July, about 450000 tons higher than the same period last year, which is the middle level of commercial inventory in the same period of the past five years.

From the perspective of imported cotton supply, China's cotton import supply in 2023/24 has increased significantly. By the end of July 2024, China's cotton imports in 2023/24 had totaled 3.11 million tons, which was higher than the annual estimate of the Ministry of Agriculture and Rural Affairs of China on the premise of not counting imports in August. At the same time, the cotton import volume in 2023/24 has reached a new high level for nearly seven years.

In terms of the expected supply of new cotton, according to the estimate of the Ministry of Agriculture and Rural Affairs of China, the cotton output of China in 2024/25 is estimated to be 5.58 million tons, a slight decrease of 40000 tons compared with the cotton output in 2023/24, due to the decline of planting area. However, the weather is good this year, and the per unit area yield of cotton may be increased. The possibility of yield reduction turning into yield increase is increased. Whether the output will be adjusted upward needs further observation and waiting for the new cotton to come into the market. According to the estimate report of USDA, China's cotton output in 2023/24 is 5.96 million tons, and that in 2024/25 is 5.99 million tons, increasing by 20000 tons.

Therefore, the supply pressure from three aspects is high. However, a large number of new cotton has not yet been listed. According to the experience in previous years, it is expected that a large number of new cotton will be listed after the National Day.

At present, the market is paying attention to nine gold and ten silver, and the quality of the demand side has become the focus of attention in the near future. Since 2024, the demand of the cotton market has shown a relatively low trend. First, the textile enterprises have insufficient starting power. Since 2024, the spinning profits of textile enterprises have continued to show a loss state, leading to the accumulation of yarn inventory before August. However, recently, the textile profits of textile enterprises have entered the margin of profit and loss, adding to the peak demand season of gold, silver and ten silver, The operating rate of enterprises has rebounded, and the yarn inventory has slowly declined since August, which to some extent reflects the characteristics of strong demand. The short-term demand side has changed, but the speed of yarn destocking remains to be tested by time.

However, if we consider the inventory consumption of the whole year, China's cotton inventory consumption is relatively high, far higher than the inventory consumption ratio of major cotton supply and demand countries in the international market, and also higher than the global cotton inventory consumption ratio. Therefore, although there is seasonal demand for phased demand, the pressure of high inventory and low consumption is still great from the perspective of inventory consumption ratio.