Since the end of March, cotton prices have shown a steady upward trend, with a cumulative increase of more than 2,000 yuan/ton, spurred by multiple positive factors such as the reduction in cotton planting area in Xinjiang, weather speculation, and improvement in downstream domestic and foreign sales data year-on-year. However, the main contract price recently hit a high of 16,065 yuan/ton and then fell into adjustment. How will the price perform in the market outlook and whether the rising trend can continue? This article makes the following analysis.
Replanting cotton growth in the later period becomes the key
Since April, most cotton areas in Xinjiang have experienced low temperatures, precipitation, strong winds, frost and even hail. The air temperature in northern Xinjiang is obviously lower than in previous years, which not only delays the sowing progress by 10-15 days compared with previous years, but also makes many cotton seedlings difficult to emerge or directly freeze to death. The area for reseeding has increased significantly compared with two years ago. Aksu, Korla and other places in southern Xinjiang have also been hit by at least two rainfalls, low temperatures, and sand and dust. Many newly unearthed cotton seedlings have also been affected. Stimulated by this news, Zheng cotton prices rose significantly.
According to the latest weather forecast, temperatures have begun to rise rapidly in most areas of Xinjiang. The weather in the three major cotton regions of Kashgar, Aksu and Korla in southern Xinjiang is generally good, which is conducive to farmers’ cotton replanting and resowing. In the cotton areas of Changji, Shihezi, Yili, and Tacheng in northern Xinjiang, the temperature has also increased significantly, and the precipitation has weakened. Some areas where sowing has been postponed will set off a spring sowing climax (some farmers can switch to early-maturing varieties). Time grows. Generally speaking, under normal circumstances, cotton can be replanted before May 20. The weather in the later period deserves attention, and whether the replanted cotton seeds can grow smoothly becomes the key. And under the current background of reduced planting area, there is no room for major mistakes in yield. If there are subsequent weather problems, the impact of weather on prices will be amplified.
In terms of US cotton, Texas, the main producing area, has received significant rainfall recently, and the drought situation has eased, which is conducive to the planting of US cotton. Recently, the market’s weather speculation about U.S. cotton has been low. As of the previous week, the cotton planting rate in the 15 major cotton-growing states in the U.S. was 22%; the level in the same period last year was 23%, 1 percentage point lower than the same period last year.
The market atmosphere has weakened
From the perspective of macro data, the domestic PMI in April was 49.2, lower than the critical value, and the manufacturing boom level has declined. The Purchasing Managers Index (PMI) of China’s cotton textile industry in March was 62.44%, a month-on-month decrease of 2.31 percentage points. The industry generally believes that the cotton textile industry PMI in April will decline along with the manufacturing PMI and non-manufacturing PMI. In addition, imports in April fell by 7.9% year-on-year, and the year-on-year decline in imports in April continued to expand compared with March. In terms of exports, although my country’s textile exports increased significantly month-on-month in March, industry analysis shows that the substantial growth in textile and clothing exports in March was unique and not sustainable. This is because the domestic cotton consumption peak season in March and April has passed, the operating rate of terminals such as clothing and weaving enterprises in coastal areas has declined, and the market atmosphere has weakened.
According to feedback from enterprises, domestic sales of downstream textiles have begun to show signs of weakening, and follow-up orders have been slow. Except for a few large and medium-sized enterprises above designated size, which have arranged their cotton spinning orders until June, most enterprises can only hold on to new orders until late May. The foundation and driving force for truly strong domestic sales are not stable enough. In the early stage, the domestic cotton spot price increased by 1,300-1,500 yuan/ton, but cotton yarn only increased by 300-500 yuan/ton due to resistance from consumer terminals and low new order prosperity, making it difficult to follow the increase.
In terms of downstream inventory, as of the week of May 5, the cotton inventory of textile enterprises was 29.2 days, a decrease of 2.4 days from the previous month; the inventory of finished products of textile enterprises was 10.9 days, a decrease of 1.1 days from the previous month; the cotton yarn inventory of weaving mills was 11 days, an increase of 0.3 days from the previous month. ; The inventory of cotton gray fabrics is 25.4 days, an increase of 0.1 days month-on-month. Generally speaking, the low level of raw material inventory fell slightly, and the low level of finished product inventory increased slightly.
Taken together, the early transactions on weather premiums have basically been fully reflected in prices, and the market outlook needs to continue to track planting area and weather conditions. In addition, on the downstream side, after entering the off-season, the market lacks confidence in the current price increase. Further increases in cotton prices still require continued efforts from the demand side. However, the current pattern of cotton price increases has not changed. Focus on the first-line support near 15,200 yuan/ton.