Review of cotton market conditions in the first half of 2015 and outlook for the market outlook

[168TEX News] In the first half of 2015, the overall market showed a trend of stabilization and then decline. Affected by factors such as continued sluggish demand and high international cotton inventories at the beginning of the year, domestic cotton prices fell slightly; after the first quarter, although cotton inquiries in the market Prices, inspections, and purchases have recovered slightly, but the centralized replenishment of raw materials that the market generally hoped for has not occurred, and the cotton purchase and sales situation has not improved significantly. In the second half of the year, the cotton market will continue to face the contradiction between supply and demand. With overall consumer demand still recovering slowly and sales sluggish, the yarn market will also become increasingly weak. The slow pace of economic recovery and sluggish consumer demand at home and abroad, as well as the specific situation of high domestic cotton inventories, oversupply, low consumption, and weak demand, determine the weak trend of cotton prices. Judging from the market situation, the domestic cotton spot may show a weak and stable pattern in the future.
Review of cotton market conditions in the first half of the year
January to mid-February (market decline period):Since the end of 2014, the seasonal pressure on the cotton market has gradually increased, and the overall supply of cotton has been loose due to the increase in new cotton supply. In addition, the demand side has not fundamentally improved. With the increase in new cotton on the market, some large domestic textile companies have lowered cotton purchase prices several times in recent times. The fundamental factor affecting the rise and fall of cotton prices is market supply and demand. Although the new cotton annual market supply has declined due to reduced production, the inventory of state cotton reserves alone is 10 million tons, and the market supply will increase in the later period. The lack of significant improvement in downstream consumption is the main reason for the continued downturn in cotton prices and the main reason for the serious pessimism in the current market. At the same time, the ripples of lower cotton prices are quickly transmitted to downstream cotton yarn and cloth, causing the selling prices of cotton yarn and cloth to drop again and again. They have no choice but to maintain capital and make a small profit or even sell at a loss, which puts even more pressure on the production and operation of cotton textile enterprises.
Mid-February to the end of March (stable market period):Affected by the Spring Festival, the situation gradually became deserted after mid-February. Textile companies and traders were basically in a state of decline for most of January. While we were busy recovering funds, it was rare for small orders to be generated. Since the middle of the month, the market has basically entered a closed state, and prices have basically stagnated. After the Spring Festival in March, because cotton textile companies generally extended the Spring Festival holiday, most cotton textile companies resumed work one after another after the Lantern Festival. Therefore, the cotton market is “open” but not “open” in the traditional “off market” period from the Spring Festival holiday to the Lantern Festival. That is, in the first half of March, the market is basically closed during the traditional festival period. In the second half of the month, due to the impact of the overall economic downturn this year, downstream demand was sluggish and insufficient order follow-up directly led to difficulties in starting sales in the cotton industry chain. Transactions were light and financial pressure was tight. Cotton procurement was waiting to be seen, except for urgently needed small quantities. In addition to rigid procurement, it is not easy to buy raw materials. This resulted in an overall sluggish cotton market in March, in a dull atmosphere of slow recovery.
April-June (slightly lower): Entering April, it should be the node where the downstream cotton yarn market transactions and purchases gradually increase, and downstream purchases will also drive the recovery of cotton prices; however, the overall market transactions after the holiday It started slowly, and spot prices showed little sign of rising in March. Although cotton inquiries, inspections, and purchases in the market have picked up slightly, the centralized replenishment of raw materials that the market generally hopes for has not occurred, and the cotton purchase and sales situation has not improved significantly. The downstream textile market is still tepid, with raw material procurement starting slowly, and small orders are mainly bought as needed; prices of mid- and low-end yarns are still declining, manufacturers ship in bulk, large orders are scarce, and stocks of cotton yarn and gray fabrics remain high. In May, domestic cotton spot market prices gradually adjusted from weak to strong; although the linkage between domestic and foreign cotton futures markets is still not strong, prices have stopped falling and rebounded; the downstream pure cotton gauze market has initially improved, and manufacturers’ shipments are better than the same period last year. Prices are stable with some weakness.
Judging from the domestic cotton spot price index, we can clearly see from the price index curve chart below that the overall cotton market in the first half of the year showed a trend of falling first and then stabilizing. As of mid-June, the CC Index 3128B index was 13,337 yuan/ton, down 165 yuan/ton from the beginning of the year. CC Index 2227 grade cotton is 12,195 yuan/ton, down 490 yuan/ton from the beginning of the year. The CC Index 2129 grade cotton is 14,011 yuan/ton, down 295 yuan/ton from the beginning of the year.
Domestic cotton spot 3128B price chart in the first half of 2015



Factors affecting cotton price:
1. The narrowing trend of domestic and foreign cotton price differences has slowed down
According to China Customs statistics, in May 2015, my country imported 163,100 tons of cotton, an increase of 2,300 tons month-on-month, or 1.43%; a year-on-year decrease of 28,400 tons, or 14.83%; from September 2014 to May 2015, my country’s cumulative Imported cotton was 1.3335 million tons, a year-on-year decrease of 966,600 tons, a decrease of 42.02%.


As of May 21, 2015, the domestic CCI328 index reached 13,366 yuan/ton, and the CCI328 index was 11,366 yuan/ton at a discount to the international Cotlook A delivery price A index of 1%.The price is 2,000 yuan/ton, which is 377 yuan/ton lower than the sliding standard tax of 13,743 yuan/ton. The Zheng cotton index contract (13025) is 718 yuan/ton lower than the international Cotlook A discount delivery price A index sliding standard tax. Cotton in and outside the spot market Price spreads continue to fall compared to last month. However, domestic cotton consumption is currently shrinking, textiles and clothing lack competitiveness in the international market, export orders continue to be lost, and consumption continues to shrink. International cotton prices will not be able to provide any support for Chinese cotton prices in the near future.


2. Rumors about the future reserve dumping policy may affect market trends
Since May, various news about the sale of reserves have been flying in the market. Zheng Cotton Futures was frightened and turned downward. Spinners did not dare to replenish their stocks normally. Spinners with relatively large stocks of cotton yarn were planning to destock. However, the news of dumping reserves is basically in line with people’s expectations. It is expected that the dumping time will be carried out at the end of July or early August. The spot supply has entered a period of slack. The state dumping reserves will replenish market resources without suppressing the market. However, the dumping policy itself is negative for the country. In the cotton market, it is difficult to increase the current spot market price.


High domestic cotton inventories once put a lot of pressure on the market, but this has become the norm, and the market has basically reflected this, and the so-called high inventories are mainly state reserve inventories. The ending cotton inventory in 2014/2015 is expected to be 14.18 million tons, and the state reserve cotton inventory is about 11 million tons. Before this part of the inventory is released, the overall market inventory level is more than 3 million tons, which is within the normal range, and supply and demand are relatively balanced.
3. The threat of imports has shrunk, and supply stocks are expected to tighten in the new year
Starting from April, the new cotton purchase and storage policy came to an end, and the new cotton direct subsidy policy officially began. April is the first month of the new policy of adjusting the minimum price of the State Reserve cotton sales auction from 18,000 yuan/ton to 17,250 yuan/ton. The enthusiasm of cotton textile enterprises to participate in the auction is unprecedentedly high, and the planned sales (investment) quantity and transaction volume have increased significantly, both reaching record highs. By May, bidding enthusiasm dropped rapidly. As of June 13, a total of 1,925,021.51 tons of cotton had been traded in the 2013/14 cotton year. The enthusiasm of cotton textile companies to participate in the sale and auction of state cotton reserves continues to weaken, and “buy as you use (auction)” has become the norm.
According to industry insiders, as the textile market is about to enter the traditional sales off-season, the state reserve cotton sales and auctions will continue to remain light in the future. The sale and auction of state-owned cotton will end at the end of August, and cotton textile companies need to reserve a certain amount of cotton before new cotton comes on the market. Therefore, starting from July in the second half of the year, the trading volume of the state-owned cotton sale and auction will begin to pick up.
4. Downstream Market
Since the beginning of the year, the downstream demand market has been relatively deserted. Under the pressure of insufficient domestic demand, limited demand from foreign orders, and the impact of imported cotton yarn and cloth, as well as the financial pressure of downstream weaving and textile enterprises, the sales of yarn and cloth shrank significantly. After entering May, the sales of yarn and cloth New orders are still sluggish, and the overall market situation is becoming increasingly weak. It is generally sluggish, sales are stagnant, and prices are falling, making it difficult to recover. Cotton textile and weaving production enterprises have increased inventories and are experiencing operating difficulties. In fact, the current gauze market is weak and difficult to recover. Sales are sluggish and indifferent, prices have been lowered, there are no hot-selling varieties, recovery is slow and difficult, and the overall wait-and-see mood is strong. The production orders of cotton textile enterprises are “small batches and short delivery times”, which can neither meet the needs of full production nor be enough to improve and stimulate the improvement of the overall gauze market. Cotton textile enterprises have increased inventories, are facing tight funds, and have operational difficulties. They are generally bearish on the market outlook and lack confidence.


As of mid-June, cotton yarn prices: Qianqing C32S price is 20,700-21,100 yuan/ton, JC40S price is 24,700-25,200 yuan/ton; Xiqiao C32S price is 20,500-21,000 yuan/ton, JC40S price is 25,000-25,400 yuan/ton; Chang The price of JC32S in Yiyi is 23,800-24,200 yuan/ton, the price of JC40S is 24,500-25,300 yuan/ton; the price of C32S in Nantong is 19,700-20,300 yuan/ton, and the price of C40S high-end jet is 22,000-23,000 yuan/ton.
Cotton market forecast for the second half of the year
From a macro perspective in the second half of the year, the market generally expects that my country’s economy will continue to trend downward. At the same time, the recent crisis of financial pressure on small and medium-sized enterprises also indicates that the market will continue to be depressed. It can be said that the future economic situation is hardly optimistic. Looking at the cotton industry chain, the pattern of oversupply in the cotton market will affect cotton prices for a long time. High inventories of finished textile products and financial problems in downstream industries indicate sluggish downstream demand. Cost factors and lack of orders make it difficult for downstream textile companies to survive. It can be seen that the current domestic cotton price is easy to fall but difficult to rise. The fundamental improvement of the downstream market determines the future of the cotton market. Generally speaking, global cotton stocks continue to exceed demand. The recovery of demand in the textile industry is slow, and imported cotton intensifies the supply of the spot market. Pressure, the winter in the cotton market is far from over.