In early August, the overall supply of cotton was loose. Currently, there is a large price difference between domestic and foreign cotton, and there is significant pressure from the lack of advantages in domestic cotton. The downward trend of cotton prices has widened. According to the Commodity Market Analysis System of Shengyi Society, the spot price of 3128B grade cotton on August 12th was 14733 yuan/ton, a decrease of 4.32% from the beginning of the month.

In terms of futures, both Zhengmian and Meimian hit a new low for the year in the first half of the year, and then the trend stabilized with a slight rebound. As of the 12th, the closing price of Zheng cotton’s main contract was 13620, and as of the 9th, the settlement price of ICE cotton’s December contract was 68.34.

Domestic market: Since August, Zhengzhou cotton has experienced a significant decline, and cotton spot prices have also followed suit. The decline in cotton spot prices has widened compared to July. The recent expectation of loose supply in China, the lack of significant improvement in demand, and the absence of effective macroeconomic incentives have all put pressure on cotton prices to operate weakly. In addition, the weather conditions in the production area are favorable for the growth of new cotton, and the market has a strong estimate of high yield for new cotton, further highlighting the loose supply situation.

International market: Last week, the US stock market fell sharply, putting pressure on the commodity market, and the decline in US cotton intensified. Later, with the rebound of US stock and international crude oil prices, market participants’ mentality improved. Last Friday, under the influence of the improved sentiment in the peripheral market, cotton showed an oversold rebound performance. In late July, a large number of US cotton contracts were cancelled, leading to a sharp decline in US cotton exports for two consecutive weeks. Market analysis suggests that this is due to a significant increase in shipping costs, China’s addition of only 200000 tons of sliding tariff cotton import quotas in 2024, and competitive pressure from Brazilian cotton.

Insufficient downstream demand: yarn prices continue to decline, and the downstream market remains weak. From the perspective of market operation, due to the continuous decline in cotton prices, textile enterprises are becoming more cautious in replenishing their essential inventory. The downstream “Golden September and Silver October” consumption peak season is approaching, but textile companies have lower expectations for the peak season, and there is currently insufficient follow-up on autumn and winter orders from textile companies.

Positive consumer data: According to the latest data from the National Bureau of Statistics, the per capita clothing consumption expenditure of Chinese residents in the first half of this year increased by 8.1% year-on-year, with a growth rate 2.7 percentage points higher than the same period last year; The retail sales of clothing, shoes, hats, and needle textiles above designated size in China increased by 1.3% year-on-year; Clothing prices increased by 1.5% year-on-year in July. According to the latest data from the General Administration of Customs of China, the cumulative export value of textiles and clothing in China from January to July was 169.8 billion yuan, an increase of 1.1% year-on-year.

Market forecast: The significant drop in cotton prices will lead to a recovery in profits for downstream cotton yarn enterprises. At the same time, the approaching peak season will boost the cotton market, and domestic cotton prices are expected to gradually stabilize and rebound. However, the expected increase in new cotton production and the unclear sustainability of downstream demand have resulted in insufficient action on cotton prices. The expectation of increased cotton production in the new year is strong, and the global cotton supply is expected to remain loose. With good demand and macroeconomic risk factors still present, it is expected that external cotton will continue to fluctuate at a low level in the short term.