Market Analysis: The Recent Market Demand Has Driven The Price Resonance Of The Cotton Industry Chain

 

After the initial decline, the domestic cotton and cotton yarn prices have rebounded at the bottom since the end of November 2023. With the warming of downstream demand at the end of the year, the textile and clothing market also showed a positive trend. Recently, the A-share textile and clothing sector has risen as a whole. In the middle of the trading session on January 22, the main contract of Zheng Mian reached RMB 16000/ton once.

Industry analysts believe that the inventory of cotton yarn enterprises has generally dropped to a low level at present, and some enterprises have arranged orders. With the backflow of foreign orders and the improvement of domestic textile and clothing demand, the price of cotton industry chain has formed resonance, and the short-term rise is expected to continue.

Zheng cotton price has risen by more than 10% in recent two months

On January 22, the main contract 2405 of Zheng Mian in the domestic futures market rose 0.19% again, breaking through 16000 yuan/ton during the session, up more than 10% from the low point of 14520 yuan/ton at the end of November last year. The main contract of cotton yarn futures also gained a large increase, breaking through 22000 yuan/ton on January 22, up nearly 8% from the end of November.

The strong market popularity abroad has driven the domestic Zheng Mian futures. Last week, Zheng Mian rose mainly, with a weekly increase of 2.61%. Since January 18, domestic cotton and cotton yarn prices have risen again, mainly due to the support of futures. On the external side, stronger than expected US retail sales data drove market sentiment, and ICE futures prices rose significantly. In terms of spot goods, as of January 18, the spot price in the United States also rose by 114 yuan/ton compared with last week. According to market feedback, China's 1% tariff cotton import quota of 894000 tons per month in 2024 has been successively distributed to enterprises around the New Year's Day, which has strongly stimulated the activity of bonded, spot and ship cargo cotton in ports. Not only are cotton trade enterprises and international cotton merchants actively picking up their USD resource bills/quotations, but also domestic cotton enterprises are inquiring about, looking at The enthusiasm for placing orders also continued to increase.

For the downstream cotton yarn market, as the end of the year is approaching, some weaving enterprises have a demand for stock, and traders have plans to build inventory. The rise in the price of raw cotton undoubtedly continues to boost their progress in picking up goods. Cotton yarn enterprises reported an improvement in their stock taking last week. At present, the inventory of cotton yarn enterprises has generally dropped to a low level. Except for the low count yarn, other goods in the mainland market have improved to varying degrees, and some enterprises have made orders.

Since the launch of the Spring Festival stock market in late December 2023, the good demand has driven the price of the cotton industry chain to rise in resonance. The profit of cotton yarn processing has turned from loss to profit. The operating load of cotton spinning enterprises has increased over the same period last year, driving the demand for cotton to increase.

With the rise of Zheng Mian futures, the bullish confidence of the market has been consolidated. As nearly half of the lint remained in ginning enterprises this year, Xinjiang ginning enterprises were reluctant to sell at a high price, which increased the lint price to a certain extent.

Periodical improvement of textile and clothing demand

The higher prices of cotton and cotton yarn also resonate with the downstream textile and clothing industry. With the approaching of the Spring Festival, some A-share textile and clothing stocks have risen in succession recently. At the market level, the consumption situation of the domestic clothing industry has slightly improved recently, mainly in combed compact spinning, and the price trend of such varieties is relatively strong in the near future.

At present, although Southeast Asian countries have certain advantages in production costs, the production of high-end fabric raw materials still needs to be strengthened, and some foreign orders gradually returned at the end of the year. The data also shows that the domestic demand for textile and clothing has improved.

In December 2023, the total retail sales of domestic consumer goods will be 4355 billion yuan, up 7.4% year on year and 2.46% month on month. Among them, the retail sales of clothing, shoes and hats, and knitted textiles in December were 157.6 billion yuan, up 26% year on year and 4.86% month on month. The accumulated retail sales from January to December were 1409.5 billion yuan, up 12.9% year on year.

The overall trend of the domestic cotton textile market in 2023 is worse than expected. In the first half of 2023, it is in the initial opening stage after the silent management policy. All cotton yarn enterprises have good expectations for future sales. The overall performance is stable in terms of both price and commencement. However, with the continued downturn in sales, the cotton yarn industry is beginning to usher in a trough. From the perspective of price trend, under the hype of raw cotton production reduction, the cotton yarn price followed the high level for a period of time, but then due to the expected gradual return to reality, the cotton yarn sales continued to be depressed, and the peak season was not prosperous. The cotton yarn operating rate fell to 30% at the golden nine and silver ten stages, and the cotton yarn enterprises also lost profits to 2000 yuan/ton at one time. However, as the cotton price rebounded in the later period, the cotton yarn price kept rising, and the profit deficit gradually narrowed. Up to now, most enterprises have been in a micro profit state.

In 2023, the cotton textile market price will rise and fall. The highest price in the year was 25250 yuan/ton in August September, and the lowest price was 22812.5 yuan/ton in January, with a price amplitude of 2437.5 yuan/ton. In October, the yarn inventory rose to a phased high. At the same time, textile enterprises received limited orders, and the demand side peak season was not strong. Superimposed by the fall in cotton prices, the cost of cotton yarn collapsed, and cotton yarn prices fell in resonance with cotton prices. In 2023, the average price of 32 cotton yarns with ordinary carding and high configuration nationwide will be 23994 yuan/ton, 8.91% lower than the average price in 2022.

After entering the month of December, the purchasing enthusiasm of downstream cloth factories and trade enterprises declined, and the cotton yarn market performance was differentiated. At present, the inventory of combed high count cotton yarn is basically cleared, and some enterprises have placed orders for combed close 60 count cotton yarn until the end of March; The destocking speed of ordinary combed cotton yarn slowed down, and the inventory dropped to 15-20 days, but the destocking speed of 32 ordinary combs was less than 40; The rotor spinning order is poor, the price is stable under the support of noil, and the starting load is not high; Blended rotor spun yarn is acceptable, but it is difficult to make profits. The enterprise purchases cotton according to the order.

Cotton textile market price may continue to rise

In 2024, the cotton yarn price may rebound from the bottom, the price center will gradually rise, and fluctuate at a level above the 10-year average price. The off-season and peak season of the market will still alternate according to the law. The cotton price and its supply and demand relationship will become the main driving force influencing the future price trend of cotton yarn. In addition, macro and policy factors will also have an impact. The fluctuation of cotton price will affect the production cost of pure cotton yarn, and then its price. It is expected that by 2024, the cotton planting area is expected to continue to shrink, and the weather fluctuations in the planting period and growth period will also have an impact on prices. In addition, lower inventory levels will support the rise in cotton prices. These factors will drive up the production cost, and then affect the price of cotton yarn.

In the first half of the year, under the continued mismatch of domestic and foreign economic cycles, the macro performance showed the characteristics of external weakness and internal strength, which will further promote the weakening of external demand and strengthening of internal demand in the textile and clothing consumer market; In the second half of the year, with the start of the Federal Reserve's interest rate cut, the clothing destocking cycle of American wholesalers ended and entered the active stocking cycle. The purchasing power rose, and China's textile and clothing exports would improve in the second half of the year. This trend will be reflected in the cotton yarn consumption as the external demand is weak and the internal demand is rising in the first half of the year. In the second half of the year, China's textile and clothing consumption is expected to achieve resonance and double cycle development at home and abroad.

It is estimated that in 2024, the theoretical gap between supply and demand of cotton yarn across the country will reach 1.4969 million tons, with a year-on-year growth of 29.39%, indicating that the supply and demand situation will weaken. Although the inventory consumption ratio shows an upward trend, it is still at a low level, and the cotton price performance is relatively strong, which will support a small increase in the center of gravity of cotton yarn prices. In 2024, it is expected that the average price of 32 domestic high configuration cotton yarns will reach 24025 yuan/ton, up 0.13% year on year.

In the short term, it is generally a new cycle for some enterprises to stock up after the year, and some orders will also have replenishment. The price may rise slightly at the beginning of the year; However, in the long run, China's textile production capacity is still in a pattern of oversupply, demand side follow-up is weak, and the overall price of late cotton yarn is still not optimistic.