Market Analysis: Although The Market Gap Is Small In Terms Of Both The Planting Area And The Yield Per Unit Area In Xinjiang

Supply: In terms of output, the national output is expected to increase from 6.62 million tons to 5.85 million tons in 2023/24 due to the decline of both planting area and unit yield in Xinjiang. Imports are expected to increase from 1.43 million tons to 1.7 million tons. In terms of reserve cotton sales, 630000 tons of cotton will be sold from September 1 to November 14, 2023.

Consumption: It is estimated that the national consumption will decrease from 8.57 million tons to 8 million tons in 2023/24.

Gap: In the new year, although the domestic output decreased significantly, the consumption decreased, and the supply of reserve cotton and import increased. There was a shortage of 450000 tons without storage and dumping, and an excess of 180000 tons with storage and dumping. The overall supply and demand situation changed from shortage to surplus in the previous year.

Inventory recovery in the new year

Inventory: In 2023/24, the domestic cotton inventory (excluding the national reserve) is expected to increase from 2.42 million tons to 2.6 million tons.

Inventory consumption ratio: The inventory consumption ratio is expected to increase from 28.23% to 32.47%.

New cotton harvest expectations fell, and costs fell

1. Under the expectation of Xinjiang's production reduction, the market initially believed that seed cotton would be harvested in the new year. At the beginning of the purchase, the price once reached 8 yuan/kg. However, with the sales volume of reserve cotton exceeding the expectation, the downstream consumption was poor, and the sales of new cotton was not smooth. Ginning plants were cautious in purchasing seed cotton, and the purchase price of seed cotton fell all the way.

2. The cost of new cotton in 2023/24 will drop from the expected 18000 yuan/ton to about 16500 yuan/ton.

The import profit was corrected, and the import volume increased slightly

1. In 2022, due to the long-term reversal of import profits, the import volume in 2022/23 fell to a low level.

2. As the import profits begin to recover in the second half of 2023, the imports in the third and fourth quarters will increase significantly on a month on month basis, but the import profits will again narrow at the end of the year. It is estimated that the import volume in 2023/24 will increase slightly from 1.43 million tons to 1.7 million tons.

The quantity of reserve cotton exceeds the expectation

The sales of reserve cotton this year began on July 31. At first, the market expected that the reserve would not exceed 500000 tons, but finally the total reserve would reach 884600 tons.

Terminal clothing consumption is declining

Since the second half of this year, the consumption of the domestic clothing market has been flat, and the clothing export market has declined significantly year-on-year.

Textile inventory is high

The decline of terminal clothing consumption was transmitted to the continuous accumulation of textiles in the middle reaches.

Textile operating rate drops to a low level

Since the second half of this year, textiles have continued to accumulate in stock, and the operating rate of spinning mills and weaving mills has continued to decline. The expectation of the peak season of "golden nine and silver ten" has fallen short, and the operating rate only slightly recovered in early December.

Domestic market outlook

1. As the planting area and per unit area yield in Xinjiang have declined, In 2023/24, the domestic production will be reduced by about 770000 tons, but the country will control the market by dumping reserves in advance. According to the calculation of 2023/24, the total dumping reserves will be 630000 tons, which can basically supplement the supply shortage caused by the production reduction.

2. In terms of consumption, since the second half of this year, China's clothing exports have declined significantly, and domestic market consumption has been flat, leading to high textile inventories and a low operating rate of the industrial chain. Assuming that there is no macro and policy stimulus in the future, domestic consumption may shrink in the new year, and the overall supply and demand situation will turn worse than that of the previous year.

3. From the perspective of valuation, the current market price has fallen below the cost line, with undervalued support downward, but there is a lack of strong driving factors upward. It is estimated that the price trend of Zheng Mian in 2024 may also be weak and volatile, and the key variable is whether China's consumption can improve.