SunSirs: The Supply and Demand Dynamics Continued, and Cotton Prices Fluctuated Within a Narrow Range

Price trend

Last week, domestic cotton prices fluctuated but showed an upward trend. According to SunSirs' commodity price analysis system, as of January 19th, the spot price of 3128B grade lint cotton was 15,889 RMB/ton, a 0.21% increase compared to the previous Monday.

Market Analysis

Domestic cotton supply remained abundant, and new cotton processing was gradually winding down.  The specific details of Xinjiang's policy to reduce cotton planting area were still unclear and were being gradually absorbed by the market, leading to a decline in bullish sentiment and a slight correction in domestic cotton prices. Zhengzhou cotton futures fluctuated within a range, and spot market basis quotes remained largely stable, with market transaction prices showing minor adjustments.

ICE cotton futures initially rose, then stabilized, and finally fell, exhibiting overall range-bound fluctuations. In the early part of the week, the USDA report reduced global production estimates and increased consumption estimates, leading to a decrease in ending stocks, which provided bullish support for cotton prices. However, due to the generally weak macroeconomic environment, even the significant improvement in the latest US cotton export sales was insufficient to reverse the downward trend. The average weekly settlement price for the ICE cotton main contract was 64.83 cents/pound, a slight increase of 0.14 cents/pound compared to the previous week, representing a 0.2% increase.

Downstream production was showing signs of recovery. According to data from the National Cotton Market Monitoring System, the operating rate of textile enterprises in early January was 86.9%, a 4.1% increase month-on-month and a 19.4% increase year-on-year. Industrial inventory was approximately 861,000 tons, a slight increase month-on-month, and the production and sales rates of yarn and fabric both increased. However, the market still faced pressure on downstream profits, and companies were adopting a strategy of replenishing raw materials only when necessary and at low prices. There were differing expectations between upstream and downstream players in the supply chain regarding inventory replenishment before the Spring Festival, and the actual transaction situation remains to be seen.

Market Outlook:

Overall, pre-holiday stocking demand will continue to provide support, but the situation of high inventory and weak consumption has not yet reversed. Factors such as poor price transmission downstream after cotton price increases, cautious purchasing by textile companies, and divergent expectations for pre-holiday restocking will act as headwinds for cotton prices. Therefore, cotton prices are expected to remain range-bound in the short term.

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