Market Observation: Cotton Prices Have Shown A Trend Of Internal Strength And External Weakness In The Past Week

Last week, substantial progress was made in the China US high-level economic and trade talks to boost global market confidence, and the international financial and commodity markets generally responded positively. After the mutual tariff reduction between China and the United States, the pessimism of China's textile market has improved, and the export orders to the United States have slightly increased compared with the previous ones. However, American cotton still lacks competitiveness in the Chinese market, and the cotton price shows a trend of strength inside and weakness outside. On the whole, with the rapid rebound of domestic cotton prices, textile enterprises are more cautious in replenishing inventory.

Last week, the joint statement of the China US Geneva Economic and Trade Talks announced that the two sides would simultaneously cancel 91% of the tariffs imposed after April 2, retain 10%, and suspend the implementation of 24% for 90 days. The results of the talks exceeded market expectations. Optimism in the domestic financial and commodity markets rose rapidly. The price of Zheng Mian futures rose strongly, reaching a peak of 13480 yuan/ton, breaking a one month high, Spot prices followed suit. The average settlement price of the main contract of Zhengzhou cotton futures was 13340 yuan/ton, up 472 yuan/ton or 3.7% from the previous week; The average price of national cotton price B index, which represents the market price of standard lint in the mainland, is 14371 yuan/ton, up 265 yuan/ton or 1.9% from the previous week.

On the international market, the Sino US joint statement reshaped market confidence through substantial tariff concessions, and the global stock market soared in response. On May 12, ICE cotton futures prices rose sharply to 68.89 cents/pound in the middle of the session. However, due to the lack of competitive advantage of American cotton in the Chinese market and the further easing of American cotton production and demand in the new year, ICE cotton futures prices continued to fall after giving up all their gains. The average settlement price of the main contract of cotton futures in New York this week was 65.74 cents/pound, down 1.65 cents/pound from the previous week, or 2.4%; The international cotton index (M), which represents the average landed price of imported cotton at China's main port, is 74.96 cents/pound, which is converted into RMB 13123 yuan/ton of import cost (calculated by 1% tariff, excluding port sundries and freight), down 181 yuan/ton or 1.4% from the previous week. The domestic cotton price is 1248 yuan/ton higher than the international cotton price, 445 yuan/ton more than the previous week.

The price of domestic cotton yarn has turned from falling to rising, while the price of external yarn has declined slightly month on month. The average price of domestic C32S combed pure cotton yarn was 20453 yuan/ton, up 85 yuan/ton from the previous week, or 0.4%; The average price of conventional outer yarn was 21647 yuan/ton, down 93 yuan/ton from the previous week, or 0.4%. The average price of conventional outer yarn is 1194 yuan/ton higher than that of domestic yarn, 178 yuan/ton narrower than that of the previous week. The price of polyester staple fiber was 6621 yuan/ton, up 285 yuan/ton or 4.5% from the previous week.

The supply and demand situation of American cotton is further relaxed, and the international cotton price may maintain low consolidation. In May, the US Department of Agriculture predicted that global production and demand would basically balance in 2025/26, with cotton output of 25.65 million tons, a year-on-year decrease of 710000 tons; The cotton consumption was 25.71 million tons, an increase of 300000 tons year on year. Among them, the situation of cotton production and demand in the United States is slightly relaxed, with the cotton output of 3.16 million tons, an increase of 20000 tons year on year; The ending inventory increased from 1.05 million tons in the previous year to 1.13 million tons. Recently, the proportion of drought in cotton producing areas in the United States has declined significantly, and the high yield is expected to be further strengthened. As of the week of May 13, the dry area of cotton producing areas in the United States accounted for 8%, 16 percentage points less than the previous week.

After the tariff reduction between China and the United States, China still imposed an additional 25% tariff rate on imports of American cotton, resulting in no cost advantage of American cotton in the Chinese market for the time being; It is reported that on May 12, the Indian government filed a complaint with the World Trade Organization, proposing to impose tariffs on some goods originating in the United States. As India is also one of the main buyers of American cotton, India's move further weakens the market's expectation of American cotton exports. It is expected that ICE cotton futures prices may remain low and volatile. The recent US weather forecast shows that strong storm weather may occur in some areas of Texas in the next 7 days, and the impact on the growth of American cotton needs to be closely watched.

The pessimism of the domestic textile market has improved, and the trend of cotton prices in the later period is difficult to be optimistic. On May 15, the People's Bank of China announced that it would cut the deposit reserve ratio of financial institutions by 0.5 percentage points, which was the first comprehensive reduction of the reserve ratio in the year, helping to promote the continued decline of social financing costs. After the mutual tariff reduction between China and the United States, the sentiment of the domestic textile market has been significantly restored. Enterprises reported that export orders to the United States have increased. Considering that the future tariff policies of China and the United States are unpredictable, it is expected that China's textile and clothing exports to the United States will accelerate within the 90 day buffer period. At present, the tariff rate of textiles and clothing imported from China by the United States is 37.5% - 55%, and 54% tariff is levied on small parcels with a value below $800. At the same time, the specific tariff of $100/piece is maintained, and the overall tariff level is still high.

According to the survey, at present, it is mainly the resumption of shipment of suspended or delayed orders after the implementation of equivalent tariffs. New orders have not been released, and many are still in the process of negotiation. In addition, the inventory of downstream gauze is still high, which may be dominated by destocking in the short term, and the demand for replenishment of raw cotton needs to be transmitted layer by layer. In view of the fact that the cotton price is close to the level before the implementation of the equivalent tariff, the additional 10% tariff needs to be digested by the market, and the upward movement of the cotton price is blocked, or there will be a shock trend.