Tongzhou Cotton Market Brief, Week 3 of May 2022
I. Zhengmian (China's cotton futures contract)
(1) Positive Factors
1) Earlier capacity reduction in spinning mills has led to a short-term balance between supply and demand in the market. Mill sales have slightly improved, and downstream orders have increased compared to the previous period.
2) Shanghai announced that it will resume business operations in stages from May 16th, with shopping malls and supermarkets gradually resuming offline operations, which is conducive to the recovery of short-term clothing consumption.
3) Indian cotton prices continue to rise, with futures reaching 169 cents per pound last Friday, pushing up global cotton prices.
4) The current price difference between domestic and international markets is significantly divergent. The inverted price difference between domestic and international prices, calculated based on a 1% tariff, is around 4500, making Xinjiang cotton the cheapest globally and favorable for textile companies.
(2) Negative Factors
1) In April, social financing totaled 910.2 billion yuan, 946.8 billion yuan less than the same period last year, with a year-on-year growth of 10.2%. The year-on-year growth rate of social financing is the second lowest in nearly 20 years. The significant shrinkage in social financing data indicates a substantial contraction in both resident consumption and corporate operations. Insufficient resident consumption will not significantly improve terminal orders for clothing.
2) From the perspective of industrial transmission, the current cotton price is still unacceptable to downstream industries, and downstream immediate profits remain in deficit, with spinning mills operating without profit.
3) Sufficient supply and severe inventory accumulation. At the end of March, social inventory reached 5.7 million tons, the highest historical inventory for the same period. Ginning mills and spinning mills have large inventories to digest.
II. US Cotton
(1) Positive Factors
1) Drought in Texas continues to worsen compared to the previous period, intensifying and resembling the severe drought of 2011. No rainfall is expected in Texas in the next seven days.
2) In the latest supply and demand report for the new year released in May, US cotton production was significantly reduced, and the stock-sales ratio was lowered from 20% to 17%, indicating that the supply and demand situation for US cotton next year may be tighter than this year.
3) India's continued purchase of US cotton supports US cotton prices. Recent US cotton export reports show that India has been consistently purchasing US cotton. The surge in domestic cotton prices in India and its continuous purchases of US cotton have stimulated the continuous rise in US cotton prices.
(2) Negative Factors
1) The Federal Reserve's aggressive interest rate hikes and balance sheet reduction are aimed at addressing the enormous inflationary pressure in the United States. On May 4, the Federal Reserve raised its target interest rate by 50 basis points, the first time in 22 years that it has raised rates by 50 basis points at once, and announced a reduction of $475 billion starting June 1. The effect of balance sheet reduction and deleveraging is more intense, directly reducing the monetary base and having an immediate impact on the market.
2) In the fund game, longs have not continued to exert force, and funds maintain a wait-and-see attitude with net long positions. In the week of May 10, the net long position ratio of funds remained at 40.4%, unchanged from the previous week, and non-commercial longs did not continue to exert force.
3) The high level of unpriced volume has fallen back, with a month-on-month decrease in unpriced volume for July. The basis for a July short squeeze has weakened this week, with the absolute volume of unpriced July contracts decreasing by 7,000 this week.
Summary: On the macroeconomic front, the Federal Reserve's 50-basis-point interest rate hike has begun, and the balance sheet reduction will also begin on June 1. The contraction of liquidity aims to curb inflation in the United States, but the $9 trillion in monetary base released by the Federal Reserve earlier is excessive, and it will continue to play a role in the market in the early stages of monetary tightening, pushing up prices. In China, the social financing data for April demonstrates the impact of epidemic control measures on the economy, with both resident consumption and corporate operations severely affected. In terms of the industry, the pattern of a limited upside and downside for domestic cotton prices remains unchanged in the short term, but the slight improvement in mill sales recently is noteworthy and may lead to a short-term, temporary upward trend. The upward momentum of US cotton has not yet ended—the high Indian cotton prices, drought problems, and the December on-call contracts remain unresolved. Exercise caution in shorting before the driving factors end.
Points to Watch: Downstream sales pace
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
Tel：86037165836206
Email：tongzhou@tongzhoucotton.com
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