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Insight | Time: Nov 12 2019 4:05PM
Cotton linter price hikes in line with cottonseed?
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Cotton by-product market is divided recently. Cottonseed and cottonseed oil prices are hiking. Cotton dreg is mainly stable, despite minor increase in some areas. Cottonseed hull falls to the bottom and slightly bounces up, while cotton linter stabilizes amid weakness.

Cottonseed oil price has been rebounding after falling to 4,400-4,450yuan/mt at the end of Mar and beginning of Apr. It has been gaining ground especially since the second half of 2019. Malaysia and Indonesia are promoting biodiesel project recently and Indonesia plans to Start B30 Biodiesel Program on Jan 1st, 2020. Indonesia is world’s largest palm oil producer. The consumption of palm oil in Indonesia and Malaysia is expected to increase 4 million tons in 2020 while the growth of production may be just 750kt. Palm oil price has been rising fast since National Day holiday, triggered by policy benefits and capital intervention. Soybean oil and cottonseed oil are pushed up accordingly. Cottonseed oil in Xinjiang hikes above 5,000yuan/mt recently, with the higher offer at 5,400yuan/mt and over 6,000yuan/mt outside of Xinjiang.

Most farms are inclined to expand the scale by witnessing high profits of animal husbandry and poultry farming currently, so the demand for cotton dreg is increasing and the price has upward momentum. However, the price increase is somehow curbed by increasing output as cottonseed oil plants are running with high operating rates recently.

Cotton output of Xinjiang in 2019/20 crop year decreases notably with the estimation falling from 5.2 million tons to 4.9-5 million tons. Given worries over sharp reduction of cottonseed output, especially when cottonseed oil and delinting plants gradually resumed operation starting mid-Oct, cottonseed price has been rebounding on increasing demand. Cottonseed in Xinjiang is currently around 1,900yuan/mt in Xinjiang and 2,300-2,400yuan/mt outside of Xinjiang, rising more than 200yuan/mt in half of month. The profit of cottonseed oil plants is restrained by higher cottonseed price, so cottonseed oil plants show lower enthusiasm for procurement and cottonseed trades slow down much with prices falling partially.

Soaring cottonseed and cottonseed oil prices fail to push up cotton linter market. On the contrary, increasing arrival of new linters leads to periodic imbalance between supply and demand, the price also moves down rapidly. Cotton linter pulp mills and refined cotton plants witness thin trades with prices hard to rise, so they generally stand on the sidelines. In Xinjiang, cotton linter for industry and food-grade refined cotton is respectively at 2,900-3,000yuan/mt and 3,200yuan/mt.

To sum up, cottonseed price increases slower and partially drops after continued rebound, cottonseed oil is pushed up stronger soybean oil and palm oil and still has upward momentum in the short run. Cotton dreg is mainly stable amid increase in some areas and cottonseed hull bottoms out slightly, while cotton linter stabilizes amid weakness and participants stand on the sidelines.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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