Recently, reporters from China Cotton Network went to Qingdao, Shandong Province to participate in the 2023 China Textile Industry Summit Forum. According to the results of the discussions between forum guests on the domestic cotton and textile market situation, it is expected that the domestic cotton textile market in 2022/23 will mainly show the characteristics of overall stability, differentiation of internal and external markets, and strong confidence in the later period. Domestic and foreign cotton supply may continue in 2023/24 The loose pattern and macroeconomic environment will be the main influencing factors of the domestic cotton textile market.
1. The current domestic cotton textile market is operating generally stably, and the recovery of domestic demand is expected to enhance market confidence.
(1) The domestic cotton textile market will operate healthily in 2022/23, with upstream sales stronger than the previous year and downstream cotton purchases relatively rational.
In 2022/23, domestic cotton supply and demand are generally loose, and the profits of ginning companies have improved year-on-year. As of early April, national cotton sales are better than the previous year. The emotional pressure on the supply side to increase production has been released. Textile companies have started to pick up, raw material consumption has increased, and finished product inventories have declined. The operation of the middle and lower reaches of the industrial chain is generally smooth. Participants predicted that the national cotton output in 2022/23 will be 6.7 million tons, import volume will be 1.85 million tons, consumption will be 7.6 million tons, and the inventory-to-consumption ratio will be 125.8%. Data from the National Cotton Market Monitoring System show that as of early April, the national cotton sales rate was 77.5%, an increase of 30.1 percentage points year-on-year; the operating rate of the textile enterprises sampled was 91.9%, an increase of 12.3 percentage points year-on-year; the average cotton inventory usage days of enterprises was 32.4 days, A year-on-year increase of 2.8 days, the production and sales rates of spinning and cloth were 102.1% and 100.9% respectively, a year-on-year increase of 15.4 and 18.0 percentage points respectively.
(2) Domestic economic recovery drives expected rebound in cotton textile consumption
After the domestic epidemic prevention and control measures were adjusted, contact consumption such as transportation and tourism took the lead in recovering. Resident consumption and investment both showed marginal recovery, and prices remained stable. In the first quarter of 2023, fixed asset investment increased by 5.1% year-on-year, and total retail sales of consumer goods increased by 5.1% year-on-year. An increase of 5.8%, and consumer prices increased by 1.3% year-on-year. Against the background that the domestic economic recovery has begun to take shape, the market has optimistic expectations for the overall recovery of domestic demand this year, and cotton textile companies have certain confidence in the market later this year. However, the current domestic cotton consumption peak season in March and April has passed. According to corporate feedback, domestic sales of downstream textiles are beginning to show signs of weakening. Follow-up orders are slow to follow up. The foundation and driving force for domestic sales to truly strengthen are not stable enough. Domestic economic recovery has a negative impact on cotton textile products. The support for consumption will not appear quickly.
(3) The gloomy overseas economic prospects and the Xinjiang cotton ban suppress export demand
The current overseas economy is characterized by stagflation, high debt, and low growth. The core consumer price index (CPI) in the United States and Europe is still high, the manufacturing purchasing managers index (PMI) continues to weaken, and the prospects for real income growth of residents are bleak. Overseas retailers and wholesalers have high clothing inventories. In March, U.S. clothing store retail sales fell 1.8% year-on-year. The University of Michigan consumer confidence index fell for the first time in four months. Yarn sales in countries such as India and Pakistan showed a weakening trend. Global demand The shrinkage trend is more obvious. In addition, the Xinjiang cotton ban has had a deepening impact on export-oriented cotton textile companies. Under the de-Sinicization of the supply chain, my country’s garment export share in Europe and the United States has continued to decline for many years. Participants estimated that the year-on-year decline in European and American orders would be at least 20-30%, and the downward trend in foreign trade orders would still be difficult to improve in the first three quarters of this year. The export of cotton products is under greater pressure than chemical fiber products. From January to February 2023, my country’s exports of cotton knitted garments fell by 24.4%, and that of chemical fiber knitted garments fell by 15.8%.
(4) The price difference between substitutes such as polyester staple fiber and cotton remains within a normal range, and the probability of price decline is high amid intensified industrial competition.
In the first quarter of 2023, the price of polyester staple fiber continued to fall, and the price difference between cotton and polyester remained at around 8,000 yuan/ton, which is within the normal range. It is understood that in the first quarter, the stocking days of pure polyester yarn raw materials in spinning mills were 5-7 days, and the undelivered orders were 1-5 days, both of which were lower than the levels of the previous two years, reflecting the reduction of orders and insufficient continuity of spinning mills. As the prices of raw materials PTA and ethylene glycol are expected to fall, the new polyester staple fiber production capacity will be realized to further increase supply. It is expected that the price of polyester staple fiber will fluctuate and fall in late 2023. There will be a periodic rise during the year but the sustainability is poor, which will have a negative impact on cotton consumption. The increase will create long-term suppression.
2. Global cotton supply and demand may continue to be loose in 2023/24, with the main pressure coming from overseas economic recession that suppresses cotton demand.
(1) Global cotton seeds are reduced but production is not reduced, and supply and demand continue to be generally loose
In 2023/24, global cotton may continue to have a loose supply and demand pattern, and the sown area is expected to decrease slightly. China, India, the United States, and West Africa are the main countries that will reduce planting. However, boosted by improved weather conditions and China’s economic recovery, global cotton production is expected to , consumption increased slightly year-on-year. Participants estimate that the global cotton planting area will decrease by 0.3%, cotton production will increase by 1.1% to about 25.3 million tons, and cotton consumption will increase by 4.3% to about 25 million tons; based on the analysis of historical data on ICE cotton prices and inventory-to-consumption ratio in the past ten years , the 2023/24 ICE cotton futures price operating range is 70-100 cents/pound.
(2) The deterioration of the overseas macro-environment has increased uncertainty in the cotton market.
The global macro-environment has been relatively complex in the past two years, with geopolitical conflicts, financial turmoil, and economic recession reinforcing each other. The external operating environment is unstable and there are many uncertainties. The International Monetary Fund predicts that the global economic growth rate will be about 3% in the next five years, which is the third tenThe weakest forecast since the beginning of the year. Guests participating in the meeting said that the current Sino-US relations are on the trend of further deterioration. The escalation of the US and European ban on Xinjiang cotton imports will damage and suppress my country’s cotton garment exports in a relatively long-term process. The intensification of corporate operating pressure and bank credit tightening caused by the Federal Reserve’s interest rate hikes will significantly intensify the volatility of commodities, including cotton. U.S. consumption is expected to weaken further in the second half of the year. If the external crisis does not explode, its contraction and deterrent effect on the real economy will be difficult to fully fade away. Pressure on the cotton market may accumulate during the delay, and the pressure will further shift to next year. Taken together, foreign macro-uncertain events continue to disrupt the process of my country’s economic recovery, and there is a relative lack of new impetus for downstream demand in the cotton textile industry. It is necessary to be alert to the risk transmission of the external environment to the operation of the domestic industry.
(3) Domestic cotton production is expected to decline in 2023/24, and supply pressure is weaker than this year
According to factors such as the abandonment of farmland in sub-optimal cotton areas, reduced income from cotton planting, competition for land for grain and cotton, and lack of water resources, my country’s cotton planting area and output are expected to decline. According to a survey by participating guests, the intended cotton planting area in Xinjiang in 2023 will decrease by 8.16% year-on-year, which is an increase from the previous month’s survey. Cotton production in 2023/24 is expected to be 6 million tons, with imports of 1.6 million tons and consumption of 7.9 million tons. The inventory-to-consumption ratio dropped slightly to 119.5%. Participants believed that the just-announced cotton target price policy is the result of comprehensive consideration of food security goals, cotton planting costs and financial affordability. The 5.1 million tons of subsidy scale reflects the policy guidance to promote the adjustment of Xinjiang’s cotton production.
(4) Cotton prices are expected to fluctuate upward starting from the second quarter of this year.
Currently, we are in the peak period of cotton planting at home and abroad. The supply-side disruption to the market may be weaker than in the previous year, but there are still opportunities for speculation. Participants said that the current price of Zheng cotton is relatively reasonable from the industrial side, but from the perspective of commodity pricing, the current cotton/Nanhua Commodity Index ratio is about 6.21, which is lower than the historical average range of 8-10. Domestic and foreign cotton cost support, major cotton-producing countries generally reducing planting area intentions in the new year, and downstream cotton spinning start-up loads in China, India, Pakistan, and Vietnam have increased significantly, etc. may boost domestic and foreign cotton prices. Participants predicted that the possibility of reduced cotton production and competition to harvest seed cotton in 2023 may push up the cost of lint cotton in the new year. The strong domestic economic recovery is expected to drive the total demand for cotton to improve. Based on seasonal analysis, it is expected that the domestic spot high point during the year may be The price is 17,000-17,500 yuan/ton, which appears on the eve of the peak season in the textile market or between September and November.