Market Observation: Domestic Cotton Inventory Is Still At A Stage High

The previous domestic cotton inventory was still at a stage high level. When the processing of new cotton was basically completed and there was no new supply except imported cotton, the domestic cotton inventory high point has been reached. It is expected that the subsequent inventory pressure will gradually weaken, and the moment of the greatest pressure on the domestic cotton fundamentals in 2024/2025 has passed.

In the year of 2024/2025, China's cotton commercial inventory hit a record high in January 2025, with a large inventory pressure. The domestic cotton supply and demand pattern is loose this year. USDA's monthly report in February predicted that China's cotton output in 2024/2025 would be 6.75 million tons, an increase of 795000 tons year-on-year, or 13.3%; The expected cotton consumption decreased by 3.6% year-on-year to 8.165 million tons. In the case of strong supply and weak demand, the commercial inventory of cotton accumulates rapidly.

China's cotton commercial inventory reached a peak of 5.779 million tons in 2024/2025 in the middle of January 2025, a record high since statistics, with an increase of about 250000 tons year-on-year. High inventory is one of the main reasons for the weak trend of Zheng cotton price this year. From the listing of domestic cotton futures to the middle of February 2025, the 1/4 quantile of the settlement price of Zheng Mian's main contract is about 13592 yuan/ton. The price of Zheng Mian's main contract in 2024/2025 fluctuates around this price for a long time, which is at a low historical level.

Inventories have begun to decline. According to the seasonal law, China's cotton commercial inventory will reach its peak in December or January of the next year, and fall back to a new low in September. Data shows that by the end of January, China's commercial cotton inventory had reached 5.7467 million tons, down by 32300 tons from the middle of January. The high point of domestic cotton inventory in this year has been reached, and the future inventory pressure will gradually weaken.

Limited response to US tariff policy. After the short-term bad news landed, we could see that there was a short-term impact on ICE American Cotton. The first trading day after the Zheng Cotton Festival was stable, with little fluctuation.

In the long term, China's textile and clothing export pattern has changed significantly. If there is no new disturbance in the tariff policy, it is expected that the impact on China's textile and clothing exports will be limited. On the one hand, the amount of clothing and clothing accessories exported from China to the United States has declined significantly since 2020, and exports to the EU, Japan and other places have also decreased to a certain extent, and the proportion of exports to ASEAN has increased accordingly. On the other hand, after the US tariff policy was implemented, China subsequently took countermeasures. It is expected that the final tariff range of the US will be controllable, and we will continue to pay attention to relevant progress.

In 2025, the domestic cotton planting area may increase slightly year on year, but the unit yield is expected to decline, and the total output is expected to decline year on year. The report released by China Cotton Information Network in early February shows that China's cotton planting area is expected to grow by 0.8% year on year in 2025, of which the cotton planting area in Xinjiang will grow by 1.3% year on year, and the cotton planting area in the Yellow River basin and Yangtze River basin will decline by 4.7% year on year. During the planting and growing period of new cotton in 2024, the weather in China is suitable and the cotton is growing well, with the unit yield reaching a historical high of 2171.6 kg/ha, with a year-on-year increase of about 7.8%. Looking forward to 2025, we believe that the disturbance at the weather level will increase year on year, and the unit yield will decline year on year. According to the average estimate in recent years, the domestic cotton output will decline year on year in 2025.

The focus of the market will gradually shift, and the positive factors outweigh the negative factors. It is now the middle of February, and the traditional peak demand season of "gold, three silver and four silver" is coming. The market has certain expectations for this, superimposed on macro policy expectations. In addition, domestic cotton will be planted at the beginning of April in 2025, and the focus of the market will gradually shift to new cotton planting and weather, which may increase the disturbance.

With the initial implementation of tariff policy, the gradual downward shift of the focus of the dollar index, and the high level of domestic cotton inventory, the stage of the greatest pressure on domestic cotton has passed. Although the upward drive of Zheng cotton price in the short term is still relatively limited, in the medium and long term, it is expected that the center of gravity of Zheng cotton price will move up.