Tongzhou Cotton Market Brief, Week 4, April 2022
I. Zhengmian (China's cotton)
(1) Positive Factors
1) As downstream production capacity continues to shrink and operating rates continue to decline, market supply is decreasing, and future downstream sales will improve somewhat.
2) The epidemic improved in June, logistics eased, and consumption partially recovered, which will boost cotton consumption.
3) The widening gap between domestic and international prices continues to suppress imports of high-priced foreign cotton, reducing the amount of imported cotton arriving at ports and benefiting the sales of Xinjiang cotton.
4) Ginneries are not under significant repayment pressure and still have the willingness to maintain prices. Upstream ginneries have temporarily passed the repayment period at the end of March, and the repayment pressure on some factories has temporarily eased, leading to a willingness to maintain prices.
(2) Negative Factors
1) This round of the epidemic has had a significant impact on the economy, affecting downstream consumption and logistics and transportation.
2) Around May Day, downstream production capacity declined rapidly to address the serious immediate profit losses and insufficient orders, and many companies indicated that they would extend the May Day holiday.
3) Supply-side pressure is intensifying. As of April 23, Xinjiang's sales progress was only 45%, lagging behind the same period last year by 46 percentage points, and ginneries are actively seeking sales.
II. US Cotton
(1) Positive Factors
1) Inventories of finished apparel in Europe and the US are still increasing, and consumption resilience remains.
2) The Russo-Ukrainian war restricts the export of food and fertilizers. Rising fertilizer costs increase cotton planting costs.
3) The net long position of funds increased by 2 percentage points month-on-month to 40%, laying the foundation for the game of US cotton.
4) The unpriced volume in July and December increased month-on-month, remaining at the highest level for the same period in history. July increased by 4,300 contracts month-on-month to 63,000 contracts, and December increased by 473 contracts month-on-month to 46,000 contracts.
5) Drought in Texas may increase the rate of US cotton abandonment. To date, the drought in Texas and the entire US has not eased; there has been rainfall in the Texas region in the past two days, but the driest area, Lubbock, still has not received rain.
(2) Negative Factors
1) On Thursday last week, Federal Reserve Chairman Powell said that "a 50-basis-point rate hike at the May meeting would be an option." The Federal Reserve's May interest rate meeting is imminent, and liquidity will tighten again.
2) The recent shipment performance of US cotton has been generally poor. If shipments cannot be significantly improved in the future, coupled with logistics problems, a large number of breaches of contract may occur later, and US cotton's year-end inventory will increase.
3) Southeast Asian countries are suffering from serious profit losses, reducing their demand for US cotton. Downstream industries in Southeast Asian countries and India can no longer afford high cotton prices, yarn mills' profits are shrinking, negative feedback is being transmitted, and the market is gradually reducing its demand for cotton.
Summary:
On the macroeconomic front, Federal Reserve Chairman Powell said last Thursday that "it would be appropriate to act a little faster, and a 50-basis-point rate hike at the May meeting would be an option." Powell's remarks were consistent with previous market expectations, but he also said that a series of 50-basis-point rate hikes would follow, suggesting the possibility of further rate hikes of the same magnitude. As the Federal Reserve's May interest rate meeting approaches, market trading is shifting towards the Fed's tightening of monetary policy, the offshore RMB exchange rate has depreciated significantly, reaching 6.5263 on Friday, and the significant depreciation of the RMB is accelerating capital outflow. The International Monetary Fund (IMF) revised its forecast for global economic growth in 2022 on April 19. Considering the impact of the Russo-Ukrainian conflict on the global economy and the impact of China's epidemic prevention and control measures on the economy, the forecast was lowered by 0.8 percentage points to 3.6%.
On the domestic fundamental side, there has been little change, and the situation remains one where upstream producers are unwilling to sell at low prices and downstream buyers are unwilling to buy at high prices. Supply-side pressure continues to increase, with the latest sales progress of new cotton at only 45%, 46 percentage points lower than the same period last year. Ginneries are actively seeking sales, but actual transactions remain sluggish. To reduce losses, downstream industries continue to reduce production capacity, but finished goods inventories continue to accumulate, and immediate profits are still losing around 1500. The weak domestic situation has not improved and is continuing to worsen. The new year's planting progress has reached nearly 90%, and it is expected to be completed by the end of April. Due to favorable weather conditions in the early stages, the new year's progress is 20 percentage points faster than the same period last year, and the planting area is expected to increase by about 0.9% compared to last year.
The US cotton fundamentals are characterized by intensified capital games, with unpriced volumes in July and December continuing to increase, and the net long position of funds rising by 2 percentage points month-on-month to 40%, while weather premiums remain unresolved. However, the shipment progress of US cotton has been slow, with breaches of contract occurring in China in the past two weeks. If logistics problems cannot be resolved in the future, a large number of breaches of contract or reverse repurchase agreements may occur in US cotton, which would raise year-end inventories and ease the tight situation in US cotton.
Points to Watch: Changes in on-call, downstream orders
Leaders from Xiamen C&D Group visited Tongzhou for investigation and guidance
On March 3, Wang Yongqing, Vice President of Xiamen CNOOC Group, visited Tongzhou Group for investigation and guidance. Wei Gangmin, Chairman of our company; Huang Hongyu, President; Li Tao, Vice President; and Zhang Zhiyan, Director of the General Office, met with and participated in a symposium.
Tongzhou Cotton Market Brief, Week 1 of March 2025
1) This week's National People's Congress and the Chinese People's Political Consultative Conference (NPC & CPPCC) in China boosted market expectations for steady growth. In February, the Purchasing Managers' Index (PMI) for manufacturing stood at 50.2%, up 1.1 percentage points from the previous month, indicating a significant improvement in the manufacturing sector.
In 2024, China's dyeing industry saw rapid export growth to ASEAN and RCEP member countries, exceeding the overall export growth rate. However, this growth was accompanied by a decline in prices. From January to December, China's exports of eight major dyeing products to ASEAN totaled 7.908 billion meters, a year-on-year increase of 12.14%, 4.61 percentage points higher than the overall export growth rate, accounting for 23.58% of total exports. The average export price was US\$1.19 per meter, a year-on-year decrease of 2.75%, 0.64 percentage points lower than the overall decline. Exports to RCEP member countries totaled 8.431 billion meters, a year-on-year increase of 11.35%, 3.82 percentage points higher than the overall export growth rate. The average export price was US\$1.17 per meter, a year-on-year decrease of 2.79%, 0.60 percentage points lower than the overall decline.
On February 28, Mr. Huang Hongyu, President of our company, was invited to attend the 2025 Zhangjiagang Cotton Industry Development Conference and, as a guest speaker at the "Xiangshan Roundtable," shared his views on the cotton market and trading opportunities.
Henan Tongzhou Cotton Industry Co., Ltd.
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Henan Tongzhou Cotton Industry Co., Ltd.
Address: 10th Floor, Henan Nongxin Building, No. 19 Commercial Outer Ring Road, Zhengdong New District,Zhengzhou, China
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Email：tongzhou@tongzhoucotton.com
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