Market Observation: The US Election Directly Affects The Future Turbulence Of The Cotton Market

After the results of the US presidential election were finalized, Trump's trade protectionism led to an increase in the market's expectation that US inflation would intensify and affect consumption growth. Subsequently, the interest rate cuts of the Federal Reserve, the Bank of England and the Swedish Central Bank boosted the market's bullish atmosphere again. The Standing Committee of the National People's Congress approved an additional 6 trillion yuan local government debt limit to replace existing implicit debt, ease the pressure on localized debt, enhance the momentum of economic development, and boost market confidence. Domestic cotton picking has entered the final stage, and the progress of new cotton processing and sales is faster than the same period last year. The characteristics of the downstream textile market in the off-season are increasingly obvious, and the number of new orders is insufficient. Enterprises generally believe that Trump may impose tariffs on Chinese goods significantly after winning the election.

1、 Last week's price review

From November 4-8, the price of cotton at home and abroad fell first and then rose. The price of Zheng Mian's main contract fell below the low level since October, and then became stronger due to the boost of the domestic macro market and the rise of the external market. The average settlement price of the main contract of Zhengzhou cotton futures was 14066 yuan/ton, up 12 yuan/ton from the previous week, or 0.1%; The national cotton price B index, which represents the market price of standard lint in the mainland, averaged 15384 yuan/ton, down 21 yuan/ton or 0.1% from the previous week. The average settlement price of the main contract of cotton futures in New York was 70.32 cents/pound, up 0.20 cents/pound from the previous week, or 0.3%; The international cotton index (M), which represents the average CIF price of imported cotton in China's main ports, averaged 81.24 cents/pound, down 0.08 cents/pound, or 0.1%, from the previous week; Converted into RMB, the import cost is 14036 yuan/ton (calculated by 1% tariff, excluding port miscellaneous and freight), up 37 yuan/ton or 0.3% from the previous week. The domestic cotton price is 1347 yuan/ton higher than the international cotton price, and the price difference is 59 yuan/ton narrower than the previous week. The average price of domestic C32S combed pure cotton yarn was 21625 yuan/ton, down 54 yuan/ton from the previous week. The average price of conventional outer yarn is 22516 yuan/ton, unchanged from the previous week. The price of polyester staple fiber is 7097 yuan/ton, up 4 yuan/ton from the previous week.

2、 Recent market situation outlook

（1） International market

Trump's trade protection proposition is not conducive to consumption, and cotton prices lack the impetus to rise. In terms of macro market, Trump, the Republican presidential candidate of the United States, announced his victory in the 2024 presidential election, which led to sharp fluctuations in major global assets and enhanced market expectations for the strengthening of the US dollar. On November 7, the Federal Reserve cut the target range of the federal funds interest rate by 25 basis points to 4.50% to 4.75%. Then the Bank of England and Sweden announced to cut the benchmark interest rate by 25 basis points and 50 basis points to 4.75% and 2.75% respectively. However, as the market believes that Trump's policy proposition may lead to higher inflation and restrain consumption growth, the rate cut of the Federal Reserve may be reduced in the future.

In terms of the cotton market, the progress of cotton picking in the United States has continued to accelerate. As of November 3, the harvest rate was 63%, 8 percentage points faster than the same period last year. In the near future, there will be heavy rainfall from Texas to Southeast China, so we need to pay attention to the impact on picking and quality. With the gradual listing of American new cotton and the recent stability of cotton prices, the export progress has been accelerated. The contracted volume of American cotton exports has kept growing for three consecutive weeks, with 54700 tons contracted last week as the highest level of this year. The latest estimate of the Ministry of Agriculture of India is that the total cotton output in 2024/25 will be 5.08 million tons, a year-on-year decrease of 8%. The Minister of Commerce of Pakistan said that the number of ginning mills decreased from 1200 last year to 400, and some cotton merchants expected that the output might be further reduced due to the disruption of Pakistan's cotton supply chain.

According to the forecast of the November supply and demand report of the US Department of Agriculture, the global cotton output in 2024/25 will be 25.3 million tons, a decrease of 100000 tons month on month; The cotton consumption was 25.09 million tons, a decrease of 110000 tons month on month; The export volume of cotton was 9.18 million tons, down 60000 tons month on month. On the whole, the improvement of the macro monetary environment and the signs of active international cotton trade provide optimistic guidance for the market, but the cotton fundamentals have not changed significantly, and the international cotton price still lacks sufficient upward drive.

（2） Domestic market

The prospect of cotton consumption is poor, and the trend of cotton price is still under pressure. In terms of the macro market, on November 8, the Standing Committee of the National People's Congress approved to increase the local government debt limit by 6 trillion yuan to replace the existing implicit debt. According to Lan Fo'an, Minister of Finance, this will ease the pressure on local current debt, reduce interest expenditure, and help local governments unblock the capital chain to free up funds to enhance the momentum of economic development. The market believes that the financial strength is expected to continue to strengthen in the future. In terms of the cotton market, the domestic cotton picking has entered the final stage. According to the survey of the national cotton market monitoring system, as of November 7, the national new cotton picking progress was 94%, an increase of 7 percentage points over the same period last year. It is estimated that the country has processed 2.485 million tons of lint, an increase of 376000 tons over the same period last year, and sold 337000 tons of lint, an increase of 252000 tons over the same period last year. The purchase price of machine picked cotton is stable in the range of 6.2-6.3 yuan/kg, and the purchase of new cotton is expected to end before the end of November.

The off-season atmosphere in the downstream textile market has become more obvious, new orders have weakened, yarn inventory has increased, and some enterprises have appropriately reduced the start-up rate to maintain the capital chain operation. Due to Trump's victory in the election, the industry has increased its concern about the United States and its allies imposing tariffs on Chinese goods, and the market is still in a wait-and-see mood, focusing on whether there will be the possibility of overseas terminals replenishing stocks in advance and domestic enterprises scrambling for exports. In the short term, the domestic new cotton market is gradually strengthened while downstream consumption is relatively weak, and cotton prices will remain under pressure.