Since 2022, my country’s cotton market has been in a downturn, cotton consumption has continued to be sluggish, and prices have continued to fall. Last week, the price of Zheng cotton fell below the 20,000 mark.
The average settlement price of the main cotton futures contract on the Zhengzhou Commodity Exchange was 19,575 yuan/ton, a decrease of 785 yuan/ton or 3.87% from the previous week. The spot cotton situation is even more miserable, with most pending orders currently between 18,500-19,500 yuan/ton.
The price of cotton yarn has also accelerated due to the continuous decline of cotton and the continued sluggish demand. The current cumulative decline of cotton yarn ranges from 500-1,000 yuan/ton, and some low-price shipments have dropped by more than 1,000 yuan/ton.
“Xinjiang Cotton” ban has impact on cotton
The weak performance of the cotton market is mainly due to the intensification of external environmental risks and the continued tightening of capital market liquidity under the influence of high inflation in the United States. In addition, the Xinjiang-related bill that officially came into effect on June 21 also puts a certain amount of pressure on the industry.
U.S. Customs estimates that the implementation of the “Xinjiang Cotton” ban will significantly increase the number of transactions requiring customs review and enforcement each year from less than 1 million to more than 11.5 million. Recently, there has been feedback from textile companies that U.S. end customers have made it clear that starting from June 22, the products they purchase must undergo genetic testing by U.S. Customs. Once it is found that the cotton used in the product comes from Xinjiang, China, Uzbekistan and Turkmenistan, they will be on the spot. destroy.
The U.S. ban on “Xinjiang cotton” will begin in 2021. Textile foreign trade companies have been forced to stop purchasing Xinjiang cotton products, and they also need to prepare various certificates and information to prove that their products do not contain Xinjiang cotton. At the same time, costs are also rising. . According to people in the textile circle, many foreign trade companies have completely stopped purchasing products containing Xinjiang cotton as early as the end of last year.
Cotton supply exceeds demand
China is the world’s second largest cotton producer, and Xinjiang is the largest cotton producing area in China. In 2020, Xinjiang’s cotton output was 5.161 million tons, accounting for 87.3% of the national cotton output. The Xinjiang cotton ban has indeed shrunk domestic cotton demand a lot. According to the National Cotton Market Monitoring System in June, Xinjiang cotton sales rate was 55.8%, a year-on-year decrease of 42.6 percentage points, and a decrease of 27.8 percentage points from the average of the past four years. Based on the 5.262 million tons of Xinjiang cotton, there is a “surplus” inventory of 1.46 million tons of cotton.
At the same time, due to weather reasons this year, old cotton still has a lot of resources in the hands of flower factories, while new cotton is growing smoothly, and some areas have even bloomed. The new cotton may be released significantly earlier. Cotton has changed from a tight supply trend to a situation of oversupply. This is why cotton continues to fall and continues to be under pressure.
Downstream textile companies are also having a hard time
Under such a background, life for textile companies is even more difficult. Cotton prices have dropped significantly, but there has been no significant improvement in the profits of textile companies. High raw material prices are a superficial phenomenon, while reduced demand is the actual situation. Only by waiting for the dual forces of cost-side reduction and demand-side recovery can the profits of downstream companies be improved.
At present, it is the traditional off-season for downstream companies, and the atmosphere for companies to accept orders is sluggish, and their enthusiasm for purchasing raw materials is gradually declining. As of June 20, the cotton yarn inventory of textile enterprises remained at about 38 days, and the cotton yarn market was weak. After the cotton yarn inventory of textile enterprises fell, it showed an upward trend.
For local textile companies, unlike the chemical fiber woven industry that mostly uses water-jet looms, the cotton woven industry uses more air-jet looms. And most of the products produced are cotton interwoven gray fabrics, and the actual amount of cotton yarn is not much, so the demand for cotton raw materials will naturally decrease.
Some small textile companies in the downstream have stopped production to avoid risks and plan to restart production around the time new cotton is released. Including local water-jet and air-jet looms, the load is also gradually declining. According to data monitoring from Silkdu.com, the current operating rate of water-jet and air-jet looms in Shengze is 66.5%, a month-on-month decrease of 4.5% and a year-on-year decrease of 2.5%.
There is a lack of support for cotton downstream. This year, textile companies seem to have entered the off-season ahead of schedule. The situation in the cotton market is obviously much more severe than in previous years. From cotton farmers to textile companies, everyone feels helpless about cotton. Cotton, like the chemical fiber industry, has entered a “surplus” period, and the profit situation of the industry chain is very pessimistic.
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