China’s Demand For Cotton Will Continue To Rise

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In China, operating rates in the textile industry are continuing to rise. And inventory levels are decreasing. According to data, in January 2021, grey cloth inventory in Chinese mills was 14.94 days, and yarn inventory was 9.21 days, both of which were down from the previous month. China’s textile industry began to pick up in October last year, and textile enterprises are booked with orders until April this year. Production profits are high, and thus demand for replenishing cotton stocks continues to rise.

Moreover, the domestic peak season in spring and summer means that production will continue to rise. Export orders for textile and apparel from China are also reportedly good. These factors will mean stronger demand and prices in the global cotton market.

Besides the demand and supply, another very important factor driving the growth in the cotton market is the global stimulus packages. These packages alongwith market’s expectation of future economic recovery have stimulated a violent and sustained rise in most commodities, including cotton.

Second, the structure of supply and demand in the international market also supports the rise of cotton prices. The reduction in US cotton production in the new year and the improvement of export orders (including large purchases from China) are good for the price increase of US cotton. At the same time, Pakistan’s cotton production has decreased significantly this year.

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The global cotton demand is also significantly improving, including a substantial improvement in the demand side of India. From the USDA cotton market outlook, we can see that global cotton stocks are expected to fall by 3.2 million bales, and the inventory-to-consumption ratio will drop by 6.4% to 76.4%. Both supply and demand sides gave cotton a strong boost.

Third, the prices of China’s downstream cotton yarns and substitutes have risen. The price increase of cotton yarn after the holiday is actually higher than that of cotton. Given the background of low cotton yarn inventory, the spinning mills quickly resumed work after the holiday, and the operating rate rose to 80-90% in just two days. Under the expectation of “Golden Three and Silver Four”, just-needed purchases after March will also give impetus to cotton prices. The prices of polyester staple fibre and viscose staple fibre have also soared around the Spring Festival, which has stimulated the rise of cotton yarn prices.

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Since mid-February, cotton yarns in Jiangsu, Henan, and Shandong have increased at 500-1000 yuan/ton, and high-count carded and combed cotton yarns of 50S and above have generally increased at 1,000-1300 yuan/ton. According to statistics from SunSirs, as of February 22, the average domestic spot market price of cotton lint was RMB 16,241/ton, an increase of 4.12% in just five days. Compared with 13,504 yuan/ton in 2020, an increase of 20.27% year-on-year.

Internationally, US cotton production in 2020/21 will be significantly reduced. According to the USDA report, US cotton production this year decreased by nearly 1.08 million tons to 3.256 million tons compared with the previous year. The USDA Outlook Forum significantly increased global cotton consumption and total production in 2021/22, and also significantly reduced global cotton ending stocks. Among them, the demand for cotton in major textile countries such as China and India was raised again.

The US Department of Agriculture will release the official cotton planting area on March 31. Brazil’s cotton planting progress is lagging behind, and production forecasts are lowered. India’s cotton production is estimated to be 28.5 million bales, a year-on-year decrease of 500,000 bales, China’s production of 27.5 million bales, a year-on-year decrease of 1.5 million bales, Pakistan’s production of 5.8 million bales, an increase of 1.3 million bales, and West Africa’s production of 5.3 million bales, an increase of 500,000 bales. .

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In terms of futures, ICE cotton futures rose to the highest level in more than two and a half years. Factors such as continued improvement in demand, land competition for grain and cotton, and optimism in the external market continued to trigger speculation.

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