The cotton market awaits further improvement in demand

Last week, Zheng cotton bottomed out, and the May contract rose 450 yuan/ton weekly. Analysts said that the main reason is that the midstream cotton enterprises, traders to purchase new cotton behavior increased, market liquidity. At the same time, the downstream seasonal replenishment, the improvement of goods, market confidence can be boosted.

According to CITIC Futures cotton analyst Wu Jingwen, on the supply side, as of December 10, Xinjiang has processed 4.13 million tons of lint, and new cotton is in the processing and listing period, and the supply is gradually increasing and the short-term supply is abundant. On the demand side, the terminal textile and clothing consumption internal and external differentiation, domestic retail sales in October increased by 7.5% year-on-year, and the export amount in November continued to grow negatively year-on-year. Data show that last week, the whole cotton factory opening probability rose 1.1% to 49.5%, the whole cotton inventory decreased by 1 day to 34 days, the cotton mill opening probability fell 0.9% to 45.6%, and the cotton yarn inventory of textile enterprises increased 0.4 days to 37.8 days. The seasonal replenishment of the downstream cloth stores drives the improvement of cotton yarn and grey cloth.

From the perspective of terminal textile and clothing sales data, domestic sales and exports this year are differentiated, subject to the decline in global textile and clothing demand, the reduction of import demand in Europe and the United States, and the reduction of textile and clothing orders in China, although China's export orders to ASEAN textile and clothing have increased year-on-year, but from the total point of view, export demand has declined significantly. In terms of domestic demand, retail sales of clothing, shoes and hats, and textiles continued to grow positively year-on-year. "In the general direction of demand next year, domestic demand remains rigid, external demand improvement is a matter of time, the earliest time for improvement may appear in the second quarter of next year, the greater probability of appearing in the second half of next year."

In fact, in the first half of this year, due to lower raw material costs, the net profit margin of spinning once exceeded 10%. However, with the rising price of cotton, the terminal is generally difficult to accept the high price, the profit margin of cotton yarn is squeezed, and can only open the road to the library, and the price difference between cotton and cotton yarn once fell below 6,000 yuan/ton. Xu Yaguang said that this also proves that the price transmission mechanism of the industrial chain is blocked and it is difficult to effectively conduct downward transmission.

Cotton yarn to the warehouse needs to go through three steps: first, cotton yarn quotation fell, cotton mill cotton yarn accelerated storage; Second, the phenomenon of stampede shipment occurred, cotton yarn accelerated decline, spinning profit is not good, the probability of opening the cotton mill decreased significantly, the cotton spinning use decreased, cotton prices fell again; Third, the cotton mill to capacity, a new round of replenishment cycle began, cotton prices stopped falling. At present, the yarn to the warehouse is transitioning to the second step, and there is still greater pressure in theory in the later stage.

In addition, in terms of polyester staple fiber, Bai Xiaodong, an analyst of staple fiber at Qisheng Futures, said that the main contradiction of staple fiber is not in its own fundamentals, but in the upstream of the industrial chain. In the medium and long term, the supply of upstream PX is tight or gives strong cost support to downstream, but the short-term high valuation also limits the upside of the market. From the perspective of the cost support logic of the raw material side, PX production capacity will be expanded or enter a blank period in 2024, but the demand side will maintain a capacity growth rate of more than 5-6%. If the aromatic oil adjustment logic fermentates again, the supply of aromatic hydrocarbons or maintains a tight state, this logic will run through the whole year of 2024, and give polyester staple fiber and even the whole polyester strong cost support. Even if the logical fermentation degree of aromatic oil is less than 2023, it is enough to create a gap in the polyester staple fiber market in the stage of supply and demand mismatch.

Looking forward to the future market, Wu Jingwen believes that the core driver of cotton price operation is still downstream, and poor downstream demand and high industrial and commercial inventories of cotton yarn are the core pressure. Although the boost of low prices since December and the increase in the purchase of downstream raw materials driven by seasonal stockpiling have improved the demand margin, the sustainability of the improvement in demand still needs to be observed. If it lasts for a long time, it will drive the inventory of cotton yarn and grey fabric, and the price of cotton and cotton yarn will still have the power to rebound; If the duration is not long, the downstream finished product inventory is difficult to go, the realistic pressure is still there, and the cotton price is still at risk of falling. On the supply side, the new cotton gradually increases, the short-term supply is abundant, and the hedging willingness will be enhanced after the cotton price rises, suppressing the rebound space. Therefore, although the short-term cotton price rebound, but the rebound space is expected to be limited, maintain the weak oscillation view, there is a falling risk in the future market.

At present, the production capacity of staple fiber has not been cleared after the expansion of the stage, the supply is high, the demand is slightly poor, the supply and demand of the factory inventory is high, the basis is also significantly contracted compared with the end of the third quarter, and the staple fiber has become a relatively weak link in the polyester industry chain. Therefore, the short-term or partial oscillation of the staple fiber market, based on the raw material end, the supply end is expected to be tight in the medium term is worth watching. In addition, it is also a good choice to see reduced fiber processing fees.

From the supply and demand balance table, if the recovery time is late next year, such as the late third quarter to improve, or difficult to bring too much increase in cotton consumption. Due to the large accumulation of commercial inventories of cotton yarn, or crowd out the actual cotton consumption next year, but it is also necessary to consider the rigid demand brought by the expansion of the scale of spinning in Xinjiang. In addition, from the point of view of demand growth in the first half of this year, so many trade reservoirs in disguise to increase the demand for cotton, this part of the demand carrying capacity will not be missing in the future, once the demand is expected to improve marginal, demand elasticity is expected to increase rapidly

(Source: Asian Textile Alliance)