Market Insight: Analysis Of The Supply And Demand Pattern Of Domestic Cotton Inventory At A Historical High In

In 2024/25, China's new cotton output increased significantly year on year, and the continuation of the supply side sufficient pattern has become the consensus of the market.

In terms of output: The National Bureau of Statistics reported that the national cotton output has increased, driven by the increase of planting area and the increase of unit yield. In 2024, the national cotton output will reach 6.164 million tons, an increase of 546000 tons or 9.7% over the previous year. Among them, Xinjiang's cotton output was 5.686 million tons, an increase of 574000 tons or 11.2% over the previous year; The cotton output in the Yangtze River basin was 221000 tons, an increase of 2000 tons or 0.8% over the previous year; The cotton output in the Yellow River basin was 206000 tons, a decrease of 33000 tons or 13.7% over the previous year.

The cumulative processing volume of lint in the new year has increased significantly, and the processing speed is faster than that in previous years. As of December 29, 2024, the cumulative processing volume of lint nationwide has reached 5.94 million tons, with a year-on-year growth of 18.8%; In terms of regions, Xinjiang's cumulative processing volume was 5.845 million tons, up 19.4% year on year.

In terms of inventory: according to the industrial logic, the processed cotton enters the commercial link, and the commercial inventory of cotton begins to increase. With the centralized listing of domestic new cotton, the market resources have been greatly supplemented. In November 2024, the domestic cotton commercial inventory has increased significantly year on year.

According to statistics, by the end of November 2024, the industrial and commercial inventory of cotton (non national inventory) had totaled 5.6 million tons, an increase of 162300 tons year on year and 1.89 million tons month on month.

Commercial inventory: By the end of November 2024, the commercial inventory of domestic cotton was 4.6736 million tons, an increase of 1.7864 million tons month on month, the highest level in the same period of nearly five years. Among them, the commercial inventory in Xinjiang was 3.8669 million tons, an increase of 297600 tons on a year-on-year basis and 688000 tons on a month on month basis. The commercial inventory in the mainland region was 338700 tons, a year-on-year decrease of 287700 tons and a month on month increase of 82400 tons.

Industrial inventory. By November 2024, the inventory of domestic cotton industry was 925200 tons, an increase of 102600 tons month on month and 18400 tons year on year.

Imports: In the first 11 months of 2024, China's cotton imports totaled 2.48 million tons, a year-on-year increase of 46.7%. The import volume is at a high level in recent five years.

From January to May, China's monthly cotton import volume was significantly higher than the historical level of the same period, totaling 1.64 million, accounting for nearly 70%. The monthly import volume of cotton from June to November showed a monthly decreasing trend, but it was also near the historical average in the same period.

The decrease in imports was mainly due to:

On the one hand, in November, the import quota of cotton for domestic textile enterprises and traders became more and more tight. The dollar resource transaction was dominated by the rigid purchase of textile enterprises above the designated size. Small and medium-sized textile enterprises with traceability orders could only buy port clearance cotton when they needed it;

On the other hand, as Christmas orders are coming to an end and new export orders are falling back, coupled with concerns about the Trump government's substantial tariff increase on Chinese imports in the first half of 2025, some export-oriented textile and clothing enterprises are also taking the initiative to slow down the pace of foreign cotton signing/import, waiting for further clarity on the peripheral news and consumption situation.

From the cumulative volume in the first 11 months of 2024, 1.027 million tons of Brazilian cotton were imported, accounting for 41.37% of the total, which was the highest level in the same period of the last five years; American cotton is 866000 tons, accounting for 34.87%, which is on the high level in the same period of the past five years. This is mainly due to the increase of Brazilian cotton supply and its price advantage. The substitution of Brazilian cotton to American cotton is becoming more and more prominent. "Cost performance ratio" makes Brazilian cotton more popular with cotton enterprises.

The cotton yarn market will fall by 4.75% in 2024, and the spinning profit will be the deviation level in the past three years

In 2024, the price of cotton yarn will follow the trend of cotton. The price will rise first and then fall, with an annual decline of 4.75%. Since April, the downstream market has been in a process of continuous deterioration. The textile enterprises have few new orders, and the inventory of finished products is in a process of continuous accumulation. The immediate profit of the textile enterprises is negative. The yarn traders and downstream textile enterprises have reduced the price of yarn, which has led to a significant decline in yarn prices.

After entering December, the characteristics of the off-season became more and more obvious. The operating rate of the fabric factory continued to decline, and the orders of the yarn factory continued to weaken, and the finished products continued to accumulate. The sales speed of cotton yarn is slow, and the superimposed cotton price has dropped significantly, making it more difficult for enterprises to ship goods and increasing pressure on price reduction.

From the perspective of the spot theoretical processing profit of 32S pure cotton yarn, the spinning profit of this year was in a loss state. The spinning profit reached its lowest point in April, and then the spinning profit continued to repair, but the theoretical spot profit was still negative. The spinning profit of this year was at the deviation level in the past three years.

In November, the output of pure cotton yarn increased by 0.9% month on month and 4.5% year on year. The proportion of pure cotton yarn in the survey sample was 49%, an increase of 2 percentage points month on month; Blended yarn and chemical fiber yarn accounted for 51%, down 2 percentage points from the previous month. As can be seen from the picture, the proportion of pure cotton yarn has declined year by year in recent years. At present, the yarn inventory of textile enterprises is 27.1 days, 3.9 days more than that of last month.

According to the data of the National Bureau of Statistics, from January to November 2024, the retail sales of clothing, shoes and hats, knitwear and textiles in China will be 1307.3 billion yuan, up 0.4% year on year.

Driven by China's steady foreign trade policy, the recovery of overseas market demand, and a low base last year, from January to November 2024, textile and clothing exports totaled $273.06 billion, up 2% year on year, including $128.84 billion in textile exports, up 4.6%, and $144.22 billion in clothing exports, down 0.2%.

On the whole, the oversupply in the domestic trade market is more significant, and the pressure on textile enterprises is increasing. Some small and medium-sized textile enterprises said they would take a holiday in advance to reduce the inventory and continue to accumulate.

Analysis of global cotton supply and demand: global cotton production and consumption in 24/25 is in a loose pattern

According to the latest December global cotton supply and demand forecast report released by the United States Department of Agriculture (USDA), the total global cotton output in 2024 is expected to increase significantly from the previous year, to 25.558 million tons, and the total consumption is 25.211 million tons, which is slightly higher than the average level in the past four years. The excess supply is 347000 tons. The ending inventory estimate is higher than that of this year, which is slightly higher than the average of the past four years.

The global cotton output in 24/25 increased by 263000 tons month on month and 959000 tons year on year. The adjustment of global cotton output mainly comes from India. In 24/25, India's output increased by 218000 tons (to 5.443 million tons, only 87000 tons less than the estimated output of the previous year), Brazil's output increased by 22000 tons, and the United States' cotton output increased by 14000 tons. There may be room for further increase in China's output.

In 24/25, global consumption increased by 124000 tons month on month and 319000 tons year on year. Among them, China's consumption decreased by 109000 tons, India's consumption increased by 109000 tons, and Pakistan's consumption increased by 87000 tons.

The global ending inventory in 24/25 increased by 58000 tons month on month and 404000 tons year on year. The US raised 22000 tons, Argentina raised 27000 tons and Brazil lowered 22000 tons.

Influencing factors and market outlook of cotton price in 2025

From the perspective of the external macro environment, since the Federal Reserve started the process of interest rate reduction in 2024, macro factors have a greater impact on the market of bulk commodities. At the same time, Trump is about to take office as President of the United States, he will impose a 10% tariff on all imported commodities and at least 60% tariff on commodities from China, which may have a negative impact on China's export-oriented products. However, as for the "Xinjiang cotton ban", the cotton textiles exported downstream of China are prohibited from using Xinjiang cotton as raw materials, instead of imported cotton such as American cotton and Brazilian cotton. As Xinjiang cotton has been banned from textiles exported to Europe and the United States, the negative impact on cotton products may be weakened.

From the perspective of cotton supply and demand, it is expected that global cotton supply and demand will be in a loose state in 24/25, with output exceeding consumption, global ending inventory and inventory sales ratio rising slightly, and the loose supply and demand pattern will exert some pressure on global cotton prices.

Domestic aspect: the inventory is at a historical high. The market estimates that China's cotton output in 2024/25 will be about 6.5 million tons. From October to December, a large amount of Xinjiang cotton was transferred to the consumption areas in the mainland. In addition, the old cotton warehouse receipts were cancelled in 2023/24, and the supply capacity of the mainland cotton rose rapidly.

Imports: Data show that China's annual cotton consumption is stable between 7.5 million tons and 8.5 million tons, while the total domestic output is about 6 million tons, which means that it needs to import about 2 million tons of cotton each year to meet domestic demand. Up to now, the total cotton inventory of China's main ports may have exceeded 500000 tons. With the issuance of cotton import quota within 1% tariff in 2025, the import volume of foreign cotton is expected to rebound strongly.

At the same time, the latest survey of the national cotton market monitoring system shows that in 2025, China's intended cotton planting area will be 41.599 million mu, with a year-on-year increase of 766000 mu, or 1.9%. Among them, the intended planting area of cotton in Xinjiang is 36.788 million mu, with a year-on-year increase of 1.134 million mu, or 3.2%. The loose supply pattern will restrict cotton prices for a long time.

There are two main reasons for the increase of cotton planting intention in Xinjiang:

1. From the perspective of income: cotton planting income is stable and guaranteed, and other crops fluctuate greatly. On the one hand, the subsidy policy is comprehensive. In recent two years, Xinjiang has actively promoted the target price subsidy of cotton and the quality linked policy. For cotton that meets the quality subsidy standard, cotton farmers can receive an additional subsidy of 0.35 yuan/kg. On the other hand, the per mu yield of cotton is relatively stable.

2. From the perspective of sales, the processing capacity of Xinjiang cotton processing enterprises accounts for a high proportion in the country. According to the statistics of information publicized by processing enterprises, the number of publicized cotton processing enterprises in Xinjiang this year has reached more than 1000. At the peak of acquisition, they can meet the demand of farmers for sales, and even "rush to harvest" every year due to lack of resources, so there is no problem of difficult sales in general.

The purchase price of seed cotton in 24/25 was at a low level in history

In 2024, the purchase price of Xinjiang seed cotton will be stable. Compared with the purchase price of seed cotton in the past 8 years, the purchase price of seed cotton is in the middle low position in history, and the price change of seed cotton is small. The purchase price of seed cotton in this year remained stable after a slight decline at the beginning of the purchase, and the overall purchase cost of seed cotton was effectively controlled.

No signs of recovery in the short term; relatively optimistic in the medium and long term

The downstream demand of the current domestic textile off-season is further weakening, and the pre holiday replenishment is obviously less than expected. Some enterprises plan to take the Spring Festival holiday in advance, and the domestic cotton consumption situation continues to weaken. However, it is expected to be relatively optimistic in the medium and long term. It is possible to introduce a number of economic stimulus policies in 2025, which will be conducive to the recovery of commodity demand.

According to the survey of the National Cotton Market Monitoring System, as of the beginning of December, 47.4% of enterprises planned to purchase cotton, down 15 percentage points month on month, up 13.4 percentage points for wait-and-see, 8.4% for those not planning to purchase, and 1.7 percentage points month on month, reflecting the market's concern about the uncertainty of the macro situation next year.

The uncertainty of global cotton consumption in the future will increase significantly

Considering that the new President of the United States has set higher tariffs on China, the competitiveness of China's textile and clothing products in the United States market will decline, which may lead to a decline in China's share in the overall U.S. market. If tariffs are imposed again in the future, American cotton products can continue to transfer to ASEAN, India, Bangladesh and other markets.

Medium - and short-term cotton prices are still suppressed, and long-term upward repair is possible

At present, the cotton price is at a medium low level, but whether macro or fundamental, the current profit driven cotton price is weak, and the domestic and foreign prices are in a low range, lacking upward drive. The Federal Reserve started the cycle of interest rate reduction and China introduced a number of economic stimulus policies, which are conducive to the recovery of commodity demand. However, the uncertainty of international trade relations adds shadow to the recovery of cotton demand.

In the long run, the low price of cotton may be repaired upward. Looking forward to 2025, the traditional cotton price rise cycle in the first quarter or under the hedging pressure of global cotton production increase and new flowers, the space above the cotton price is limited, but under the support of demand, the possibility of decline is also small. In the second quarter, we focused on the cotton planting in the new year. We were optimistic about the future global cotton production, but the recovery speed of the demand side was slow, and the cotton price may be under pressure.