Factors Affecting Cotton Market
Supply side: the high level of commercial inventory superimposed on the new year's cotton output reached a new high
Since 2022, due to factors such as the slowdown of the world economic recovery and the frequent outbreaks of domestic epidemics, the demand for textiles and clothing in the internal and external markets has been weak compared with that of last year. At the same time, the cotton price in the first half of the year was at a 10-year high. Textile enterprises were very cautious about cotton procurement, and the commercial inventory of cotton increased compared with previous years. In the second half of the year, affected by factors such as cotton farmers' reluctance to sell, epidemic control in major production areas, etc., the whole process from seed cotton acquisition to processing, public inspection and logistics was slow, and the supply pressure of new cotton moved backward. As of the end of November, the commercial inventory of cotton was 3.6847 million tons, an increase of 1.3644 million tons month on month, a decrease of 867,400 tons year on year, which was at a historical low level. However, the cotton production in the new year is high. According to the monitoring, the total cotton output of China in 2022 is expected to be 6.138 million tons, with a year-on-year growth of 5.8%. The market supply pressure will continue to increase.
Demand side: external demand declined, exports were blocked, and domestic consumption was sluggish
Against the background of high inflation, the monetary policy of the Federal Reserve and the European Central Bank has been tightened actively, which has put pressure on global economic growth, and the consumption of cotton end products, textiles and clothing has declined. The export volume of cotton products in the first half of 2022 was 3.6159 million tons, with a year-on-year growth of 2.73%. After the cotton ban in Xinjiang came into effect on June 21, the export of cotton products to the United States and some European countries was blocked. In August, the export volume of China's cotton products was 599,700 tons, down 12.33% year on year and down 8.19% month on month. From January to August 2022, China's textile and clothing exports totaled 220.3 billion US dollars, up 11% year on year. After that, exports fell for three consecutive months. Under the influence of factors such as overstock in major markets and order reduction, the export volume in November was 24.386 billion US dollars, down 14.62% year on year.
According to the latest data of ICAC, the global cotton output in 2022/23 is expected to be 24.27 million tons, a month on month decrease of 823,000 tons; The global cotton consumption in 2022/23 is expected to be 23 million tons, a month on month decrease of 840,000 tons. From the data point of view, the global cotton supply still exceeded the demand this year.
Since 2022, domestic epidemics have occurred frequently. The demand for textiles and clothing market was weak compared with last year. At the same time, cotton prices in the first half of the year were at a 10-year high. Textile enterprises were very cautious about cotton procurement. The growth rate of domestic demand for textiles and clothing this year slowed down compared with the same period last year. According to the statistics bureau, from January to October 2022, the retail sales of clothing, shoes, hats, needles and textiles in China reached 1,041.4 billion RMB, down 4.4% year on year.
According to the data of the national cotton market monitoring system, as of December 1, the processing rate and sales rate of new cotton nationwide had dropped by 19.9% and 1.4% year on year, and the weakness of downstream orders could not be reversed in the short term. In December, China's cotton consumption in the new year was reduced by 200,000 tons to 7.5 million tons, and the ending inventory was increased to 7.48 million tons. In December, the national epidemic prevention policy was optimized and adjusted, the market confidence was restored, and textile enterprises around the country successively organized the resumption of production. At the end of the year, the textile enterprises' stock mood was improved, but the demand was not significantly improved in the short term, and the textile market may be closed in advance.
The profit of substitutes was good, and the demand for cotton was reduced
In the first half of 2022, the cotton price reached a new decade high, the price difference between cotton and chemical fiber was also at a historical high, and cotton textile enterprises suffered a large loss. Compared with this, the profits of chemical fiber raw materials were better, and the export of Xinjiang cotton and its products was restricted. Pure cotton enterprises switched to blended or purified fiber products, and the market share of cotton fiber was gradually occupied by chemical fiber. From the proportion of cotton yarn production, the output of pure cotton yarn this year has declined a lot on a year-on-year basis.
Market outlook
In 2022, affected by negative factors such as macro pressure and sluggish domestic and international demand, cotton fell from a high position. With the favorable policies at the end of the year and the orderly progress of textile enterprises' resumption of work, the market generally believes that cotton consumption is expected to improve in 2023. In the short term, cotton yarn transactions picked up in the first half of December, and prices rose slightly, driving cotton prices up. However, factors such as insufficient sustainability limited the rise in cotton prices. In addition, due to the approaching Spring Festival, the downstream replenishment has gradually ended, and the upward momentum of cotton is insufficient. In the long run, the global supply of cotton is loose, and the pattern of weak downstream demand has not changed. The possibility of cotton prices repeating the high level in 2022 is small, but the probability of a small recovery is large.
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