According to statistics from the USDA Export Weekly Report, in the week of May 12-18, the week of May 19-25, and the week of May 26-June 1, 2023, China signed net contracts of 14,700 tons and 5.03 million tons of U.S. upland cotton for the 2022/23 year respectively. 10,000 tons and 87,200 tons respectively, accounting for 49.33%, 82.87%, and 80% of the total contracted export volume of U.S. upland cotton that week. The import volume and import proportion have continued to hit new highs in China’s contracted volume this year compared with mid-May.
An international cotton merchant said that the year-on-year and month-on-month growth of China’s contract for 2022/23 U.S. upland cotton in mid-to-late May was within expectations, but such a large increase and such strong demand were somewhat unexpected. Cotton has long been “oversold”, so the sales entities signed are U.S. cotton exporters and international cotton merchants; other contracts are likely to require buyers and sellers to negotiate and use 2021/22 U.S. cotton, Brazilian cotton or Australian cotton as alternative delivery.
Why have Chinese companies recently become more enthusiastic about signing contracts for US cotton in 2022/23? Industry analysis mainly includes the following points:
First, the price advantage of U.S. cotton is fully apparent. Since late May, the December ICE cotton futures contract has fallen below 80 cents/pound and 79 cents/pound, and the price difference between domestic and foreign cotton once widened to 1,500-2,000 yuan/ton (under 1% tariff). This has a negative impact on Chinese cotton textile enterprises, Traders are very attractive.
Second, some enterprises above designated size with cotton import quotas have planned their raw material supply in advance for 2023/24. Considering that not only the overall cotton planting area in the country/Xinjiang region will decrease significantly in 2023, but also due to weather factors, the yields of the three major cotton areas in southern Xinjiang may decrease and the probability of price increases in Xinjiang next year will increase significantly. Therefore, I have 1 % tariff quota cotton companies have increased inquiries and orders for U.S. cotton shipments in Yuanyue.
Third, concerns about the continued depreciation of the RMB have intensified, and companies have reduced cotton import risks through various methods. Some buyers avoid the risks caused by exchange rate fluctuations by negotiating with exporters to postpone shipments, deferred payments, advance receipts and prepayments, and open forward letters of credit for financing; however, locking exchange rates and choosing RMB settlement are not smooth.