Global Economy: ICE US Cotton Market Fluctuated Due To Hurricane

ICE American Cotton rose due to the storm. Recently, the cotton market fluctuated frequently. It is worth noting that the main force of ICE American Cotton rose 2.20% in the next day's external market. The reason behind it is closely related to tropical storm Francine.

The storm moved in the Gulf of Mexico and will become a Category 1 hurricane, which is expected to bring a lot of precipitation to the Louisiana coast, and its main cotton producing areas will also be significantly affected. This triggered the market's concern about cotton harvesting, which pushed ICE US cotton prices to rebound for two consecutive days. However, the pressure above the current price is still heavy, which means that its rising space is still facing challenges. Market participants need to pay close attention to the follow-up development of the storm and its actual impact on cotton production to assess the price trend of American cotton. Zheng cotton trend and influencing factors yesterday Zheng cotton price shocks up.

From the international perspective, although the external market fluctuated and rose due to the weather disturbance at the beginning of last week, the "recession transaction" was not fully priced, and the downstream demand remained depressed. The global cotton supply and demand pattern was loose in the new year, which led to the market falling below 70 cents/pound. In the domestic sector, Zheng Mian has recently suffered an overall shock and fall. On the supply side, although the domestic commercial inventory continues to go out of stock, it is still higher than that of the same period last year. The resources are relatively abundant. The weather in the new year has limited impact on the growth of new cotton. The high yield is expected to be strong and the yield increase may increase. As of the first week of September 2024, China's commercial cotton inventory had reached 1823900 tons, a month on month decrease of 82900 tons and a year-on-year increase of 547600 tons, according to the data of www.steel.com. The industrial inventory was 785000 tons, a slight decrease of 35000 tons month on month and an increase of 30000 tons year on year.

The overall level is neutral and high. Textile mill yarn inventory was 26.5 days, which was the second highest level in history. According to the survey in Xinjiang, the cotton yield per unit area increased significantly year on year, but the cotton quality was divided into two grades. The quotation of hand picked cotton at the initial stage is 6.2-6.6 yuan/kg, which is expected to be more than 14000 yuan/ton in lint cost. The preliminary estimated price of machine picked cotton in the later stage is 5.5-6 yuan/kg, which is about 13500-14000 yuan/ton of lint. The expectation of cotton farmers is above 6 yuan/kg, while that of ginners is close to 5.5 yuan/kg. On the demand side, the traditional peak season has improved the margin of downstream orders, and the operating rate of textile enterprises has rebounded. However, the textile enterprises have insufficient power to replenish the inventory, and the sustainability of demand improvement remains to be seen.

On September 12, the main contract of cotton futures closed at 13535 yuan/ton, up 205 yuan or 1.54%. The main contract of cotton yarn futures closed at 19290 yuan/ton, up 295 yuan or 1.55%. Textile enterprises are very cautious. At present, it is the traditional peak season of "golden nine and silver ten", and the order situation is gradually improving. However, new orders are generally small and short, lacking long-term large orders. According to the data of China Steel Council, the operating rate of textile enterprises has risen from 67.2% to 70.1% since the middle of August. By the first week of September, the recovery rate was slow, lower than the same period in the past five years, and only higher than 58.3% in 2022. In the trade, buyers have obviously depressed prices, and they need to give up profits for promotion. The price of yarn is weak, and the profit is low.

Textile enterprises are hard to be optimistic about the future price trend. They also believe that the cost of new cotton this year should not be high. They are very cautious about raw material procurement, and continue to use the previous procurement strategy of purchasing when used. Short term outlook of cotton market According to the market situation of ICE US cotton and Zheng cotton, the cotton market presents a complex operation trend in the short term. Internationally, external factors such as weather have had a certain impact on cotton prices, but the contradiction between supply and demand within the industry still exists.

In the domestic market, the situation of relatively sufficient supply and sluggish demand is intertwined. In the short term, the cotton market is constrained by many factors, such as the macroeconomic situation, the expectation of the Federal Reserve to cut interest rates, etc. The correlation between cotton and macroeconomic data is strong. In the background of weak futures market, Zheng Mian is hard to support, and its own fundamentals are also a pattern of strong supply and weak demand. Given that the impact of interest rate cuts on economic stimulus will take a long time to ferment, and high inventory and other adverse factors also need time to digest, although the current price has fallen to a historical relatively low level, the price of Zheng Mian is still easy to fall but difficult to rise in the short and medium term before the macro stability and commodity trend turn.