Market Analysis: The Recovery Of 2024 Market Orders Will Directly Affect The Recovery Of Cotton Prices

At the end of last year, orders recovered, and some large factories received orders well. Weaving mills and traders began to stock up before the festival. Cotton yarn inventory of the yarn mill was rapidly reduced and transferred. At the same time, spinning profits of the yarn mill rose slightly, and the industry as a whole recovered, driving cotton prices to rise to around 16000 yuan/ton. At present, many institutions are optimistic about the rising cotton price this year, and the judgment is mainly based on two points:

First, the inflection point of overseas terminal textile and clothing inventory is approaching, and there is an expectation of replenishment, which will drive the increase of China's textile and clothing export demand;

Second, the cotton planting area in Xinjiang is expected to be further reduced. In this regard, the author believes that there may be some unexpected factors this year, as listed below.

Looking back at the inventory trend of American textile and clothing wholesalers, after excluding the impact of inflation on their value, they usually fluctuate slightly within a range, and only begin to significantly reduce in May 2020, until July 2021, they will break through the range to the historical low. During this period, the year-on-year growth of American M1 currency continues to be at a high of more than 300% (the value in normal years is within 10%), It can be said that at that time, the government directly sent money to rapidly stimulate consumption in the short term, and then stimulated textile and clothing wholesalers to significantly replenish the inventory from August 2021 to November 2022, followed by the active destocking stage that has continued to date. At present, the destocking has reached a near normal level, and this three-and-a-half year long inventory cycle that began with the US stimulus policy has basically ended. Now the interest rate has risen significantly compared with the previous replenishment period. The higher capital cost will suppress the replenishment behavior. At the same time, the same direct stimulus policy has not been seen in the United States. The author believes that we should not have too high expectations for its textile and clothing terminal replenishment behavior.

Domestic demand for cotton textiles performed well last year. First, people's travel increased after the epidemic. The recovery of the cultural, tourism and hotel industry directly boosted the demand for home textiles, while driving clothing sales. Secondly, the import cotton yarn volume has decreased sharply due to the inverted import profit. In January last year, the cumulative import volume of cotton yarn in 2022/23 was only 370000 tons, 410000 tons lower than the same period last year. This gap needs to be made up by domestic textile enterprises. At present, the cotton yarn import profit and import volume have returned to the normal level, and this part of gap no longer exists. Third, this year may face the risk of retrogression of retaliatory consumption after the epidemic. According to the data of the National Bureau of Statistics, as of the fourth quarter of 2023, the year-on-year growth rate of per capita consumption expenditure of residents has significantly exceeded the year-on-year growth rate of per capita disposable income of residents for three consecutive quarters, which reflects the retaliatory consumption behavior of residents after the epidemic last year, corresponding to the "saving" period in which the growth rate of income in the second to fourth quarters of 2022 has significantly exceeded the growth rate of consumption expenditure for three consecutive quarters. A similar situation in data also occurs in 2020 and 2021, of which 2020 is the "saving" period when income growth is higher than expenditure growth, and 2021 is the period when money is taken out for consumption. This phenomenon can be verified in the domestic textile clothing retail sales and cotton table.

For the cotton production in the new season, with the implementation of the policy of changing cotton to grain, the cotton planting area will inevitably decline, but the amount of decline needs to be observed. The national cotton detection system carried out a nationwide cotton planting intention survey in late November last year, and the result is that the cotton planting area in China is expected to decline by 2.4% year-on-year this year, and that in Xinjiang by 2.1%. The survey report on the actual planting area in June last year showed that the cotton planting area in Xinjiang fell by 8% last year compared with the previous year. At that time, such a large decline came from the extremely low cotton grain price ratio in history, and weather disasters during the planting period forced some plots to switch to other crops with short growth periods.

At present, due to the recovery of cotton price in this round, the price of cotton and grain is higher than that of last year. It is expected that there will be no significant decrease in cotton planting area this year. In terms of yield per unit area, it cannot be ignored that the yield per unit area suffered rare disasters last year, which led to a decline in yield per unit area. The probability of encountering such bad weather again this year is low. It is expected that the yield per unit area will rise under normal weather conditions.

In the new season, the production area is expected to decline while the yield per unit area is expected to increase. The final output may not change much. This year, the key point affecting cotton prices is still on the consumer side. According to the above analysis, the overseas replenishment cycle may not be as expected by the current market. At the same time, it may be affected by the retrogression of retaliatory consumption after the domestic epidemic. The demand side may have a large deviation from expectations. Over optimism in the market may cause the market to rise first and then fall, as it did last year. Industrial enterprises need to pay attention to risk control.