SunSirs: Chinese Cotton Prices are Rising Steadily, Yarn Prices Continue to Shrink

According to statistics from SunSirs, as of August 25, the average domestic lint spot market price was 12,636 yuan/ton, an increase of 296 yuan/ton, or 2.40%, from the beginning of August; a year-on-year decrease of 6.86%. The U.S. hurricane stimulated the market to be bullish, domestic lint spot prices rose steadily, and ICE March cotton futures exceeded 66 cents.

The Sino-US economic and trade negotiations have been positive, and the two sides agreed to create conditions and atmosphere to continue to promote the implementation of the first phase of Sino-US economic and trade agreements. Last week’s US Cotton Export Weekly Report showed that the major buyers of US upland cotton contracts in 2020/2021 are China’s 12,900 tons (8.7-8.13). US cotton exports are guaranteed, and the price of ICE cotton has risen sharply. The market is a double-edged sword. There are various market options, and traders have to deal with the impact of the price advantage of imported cotton.

As of August 25, ICE's March cotton futures reported 66.42 cents/lb, an increase of 1.88 cents/lb compared to August 3, or 319 yuan/ton. (Calculated at 1% tariff, the exchange rate is calculated at the Bank of China's central rate, the same below); As of August 25, the domestic Zheng Cotton 2009 contract settlement price was 12,355 yuan/ton, an increase of 295 yuan/ton from August 3.

The weather is an eternal topic for agricultural products, and market funds will certainly not easily miss this opportunity to take advantage of the hurricane. With the support of good US cotton export data, the ICE cotton futures exceeded 66 cents, domestic demand has improved, the reserve cotton has been favored by the market, and the average transaction price has been greatly increased. However, this year's consumption side has been significantly reduced, the external sales situation is not optimistic, the contradiction of supply exceeding demand is difficult to solve in the short term, the long-term cotton price is bullish, and the spot market is slowly rising.

International cotton yarn spot prices remained stable, and domestic yarn prices continued to decline weakly. In July, China imported 170,000 tons of cotton, a month-on-month increase of 20,000 tons and a year-on-year increase of 15%. Imported yarns increased greatly, and domestic yarn mills were under pressure. In order to narrow the price difference between internal and external yarns, domestic yarn prices continue to adjust weakly. On the other hand, due to the steady increase in cotton prices, the spread between yarn and cotton continues to pull in, and cotton yarn profits are further compressed. Production and sales are picking up, and the confidence of spinning mills has been slightly strengthened, but the competitiveness of external yarns cannot be ignored. It is expected that yarn prices will stop falling and seek stability.

SunSirs analysts believe that the hype effect of the U.S. hurricane has pushed up the price of futures cotton, but without a major improvement in the demand market, the rise of the cotton market will not be smooth sailing. Entering the traditional peak season of textiles, although it is not as good as in previous years, the operating rate of weaving enterprises has increased month-on-month. On the other hand, the volume of domestic imported yarns has increased, and the competitive pressure of yarn mills has increased. They have become more cautious in purchasing raw materials. The cost-effective reserve cotton is more sought after by spinning enterprises. Recently, the transaction price of reserve cotton has been high and the stock is 500-600 yuan/ton. With the consumption of raw materials, the pressure on spot sales may be relieved, and cotton prices are expected to continue to rise in the near future.

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