Monthly Report: Cotton Demand is Weak, Cotton Prices at Home and Abroad have Fallen (Mar. 2020)

In March, the domestic epidemic situation improved, and enterprises have been returning to work and production, but the spread of the international epidemic led to more cancellations of foreign trade orders and weak consumer demand for cotton. According to the prediction of the China Cotton Association, domestic cotton consumption is 7.65 million tons, down 5.2% year-on-year, a decrease of 170,000 tons from the previous period, and imports are 1.98 million tons, down 3.4% year-on-year, and an increase of 100,000 tons from the previous period. This month, domestic and foreign cotton prices have fallen sharply, and international cotton prices have fallen more than domestic ones. The end of the 2019 cotton reserve round has ended, with an actual volume of 371,600 tons. As a result of this, the decline in the area of cotton planting in Xinjiang continues to shrink.

1. Reduction of Cotton Planting Intention

At the end of March, the China Cotton Association conducted the fourth national cotton planting area survey for 2020. The survey results showed that the national cotton planting area was 46.218 million mu, a year-on-year decrease of 4.10%, a decrease of 0.93% from the previous period. The area of cotton planting in Xinjiang is 36.876 million mu, down by 1.16% year-on-year, a decrease of 1.21% from the previous period; the area of cotton planting in the Yangtze River Basin is 4.23 million mu, down by 14.41%, a decrease of 4.5% from the previous period; Yellow River The intended area for cotton planting in the basin is 5.178 million mu, a year-on-year decrease of 13.52%, a decrease of 2.5% from the previous period. Due to unsatisfactory cotton purchase prices, nearly 20% of the seed cotton in the basin has not been sold. As of the end of March, the nationwide delivery progress was 98.61%, Xinjiang, the Yangtze River Basin delivery basically ended, and the Yellow River Basin delivery progress was 82.7%.

2.Cotton Prices at Home and Abroad have Fallen

In March, domestic epidemic situation was better controlled, foreign epidemic situation spread, international financial market turmoil intensified, and cotton prices both at home and abroad fell. At the end of the month, the China Cotton Price Index (CCIndex3128B) was 11,091 Yuan/ton, down 1995 Yuan from the end of the previous month; the average monthly price was 12,195 Yuan/ton, a month-on-month decline of 1,223 Yuan and a year-on-year decrease of 3,385 Yuan. International cotton prices have fallen sharply, and the spread between domestic and foreign cotton has narrowed from last month. China's imported cotton price index FC IndexM was 69.34 cents per pound per month, down 8.56 cents from the previous month. At the end of the month, it was 63.25 cents/lb, lower than 9.8 cents/lb at the end of the previous month. The 1% tariff was reduced by RMB 10,948/ton, lower than the domestic spot price of 143 Yuan during the same period, and the price difference was 537 Yuan less than the end of the previous month.

3.The Cotton Reserve Rotation Completed, By Turnover Rate of 47%

In March, the cotton reserve rotation plan was 316,000 tons, and the actual turnover was 207,000 tons, an increase of 98,700 tons from the previous month, and the turnover rate was 65.66%, an increase of 10.13 percentage points from the previous month. The average transaction price was 12,644 Yuan/ton, down 1072 Yuan/ton from the average price in February. On March 31, the 2019 reserve cotton rotation completed, with a planned round of 500,000 tons, the actual number of listings was 786,000 tons, the actual turnover was 371,600 tons and the turnover rate was 47%.

4.The Decline in Commercial Inventory Expanded

In March, the cotton purchase and sales market gradually recovered, and the demand for cotton by textile companies has rebounded, but consumption is still weaker than the same period. The decrease in commercial inventory at the end of the month has expanded from the previous month. At the end of March, the national cotton commercial stocks totaled about 4.367 million tons, a decrease of 6.76% from the previous month and an increase of 11.35% from the same period last year. With the accelerated pace of resumption of production and domestic production, the shipment of Xinjiang cotton to Xinjiang has rebounded sharply. According to statistics, the shipment volume of Xinjiang cotton specialized warehouses in that month was 564,700 tons, an increase of 437,900 tons from the previous month, higher than the same period last year of 59,000 tons.

5.Textile Demand is Not Flourishing, Exports of Textiles and Apparel Have Declined

The domestic epidemic situation has stabilized, the international epidemic situation has accelerated, and foreign trade-oriented textile companies have had a greater impact. The output of textile products has increased month-on-month, but it has still declined year-on-year. The output of yarn increased by 43.3% month-on-month and decreased by 5.7% year-on-year; the output of cloth increased by 41.3% month-on-month and decreased by 4.9% year-on-year. The demand for cotton is not strong, and the stock of raw materials has declined. As of March 31, the cotton stock of textile enterprises was 714,200 tons, a decrease of 76,600 tons from the end of last month, and a decrease of 89,500 tons year-on-year.

According to customs data: From January to March, the cumulative exports of textiles and clothing were US$ 45.26 billion, down 17.71% year-on-year, of which exports of textile yarns, fabrics and products were US $22.69 billion, down 14.6% year-on-year, and exports of clothing and clothing accessories were US $ 22.57 billion, year-on-year Down 20.6%.

6. Xinjiang Has Improved its Target Price Policy with a Price Level of 18,600 Yuan Per Ton

On March 26, the National Development and Reform Commission and the Ministry of Finance issued a notice on improving the cotton target price policy. In order to implement the 2020 Central Document No. 1, with the approval of the State Council, the cotton target price policy will be improved in Xinjiang in 2020. The price level is 18,600 Yuan per ton, which is evaluated every three years, and the target price level is adjusted as appropriate according to the evaluation results.

 China Cotton Supply and Demand Balance Sheet(Apr. 2020)    Million tons