With the end of Spring Festival holiday, cotton textile market recovers successively, and downstream spinners welcome a good start as anticipated before the holiday. Though orders improve after the holiday, spinners remain cautious to replenish cotton, to purchase on small quantity, so spot cotton sales are ordinary. Currently, the overall market confidence has strengthened apparently compared with pre-holiday. Meanwhile, the old story about global cotton supply is basically finished, and new speculation is gradually on.

1. Cotton price change around Spring Festival holiday and market operation review

Chinese cotton prices were firmer compared with imported cotton. Xinjiang cotton prices have risen by 500yuan/mt from pre-holiday level. 2022/23 Xinjiang machine-picked grade-3128 cotton offers rose to 15,300-15,600yuan/mt ex-Xinjiang, to 15,850-16,100yuan/mt in inland warehouse. Spinners mostly sit on the sidelines and consume the inventory that is replenished before the holiday. Imported cotton prices are hard to follow up with the futures market. RMB imported cotton prices are mostly stable, and USD imported cotton offers are stable to weak. Nevertheless, downstream market is still in recovery. Some spinners reflect that orders from Chinese domestic market are apparently better than last year, and export orders are also tolerable, though the orders are still lower than pre-epidemic level. Demand improvement on cotton market still takes time, and market players hold confidence towards the market in the first quarter.

	Unit	16-Jan	31-Jan	Change	Change%
ZCE May contract	yuan/mt	14,360	15,100	740	5.15%
Chinese cotton 3128	yuan/mt	14,795	15,315	520	3.51%
ICE Mar contract	cent/lb	82.29	86.22	3.93	4.78%
Spot U.S. cotton, M 1-1/8	yuan/mt	17,900	18,000	100	0.56%
U.S. cotton, M 1-1/8, nearby shipment	cent/lb	100	102	2.1	2.11%

2. Overseas cotton market around Spring Festival holiday

U.S. cotton: export sales improve apparently during the holiday

2022/23 U.S. cotton export sales continued to warm up for two weeks during the Spring Festival holiday, and weekly export sales reached nearly 50kt, supportive to ICE cotton futures. Besides, not only China, other major cotton importers all purchased U.S. cotton. Global cotton consumption recovered periodically. U.S. cotton arrivals and inspections are in late period, and by Jan 26, inspection volumes of U.S. cotton totaled 3.11 million tons, and weekly arrivals dropped obviously. Production is basically forecast at 3.20 million tons.

Indian cotton: arrivals remain low, and CAI forecasts lower on production

According to Cotton Association of India, by Dec 31, arrivals of Indian cotton were only 1.36 million tons, down 43% from the same period of 2021/22 season. Compared with previous month’s report, Indian cotton production is lowered by 160kt and ending stocks are down by 160kt. Indian cotton production is still an unsteady factor. If Indian cotton production declines largely, local buyers will be more active to purchase cotton on international market, giving strong support to global cotton prices.

Brazilian cotton: production is expected to be optimistic, while sowing progress is slow and planting areas may be variable

CONAB forecasts 2022/23 Brazilian cotton production at 2.98 million tons in its Jan report, but sowing progress is slow due to excessive rainfall in Mato Grosso. By Jan 28, 64.4% of cotton crops are planted, down 14.4 percentage point from the same period of last year, and down 6.8 percentage point from three-year average. Whether the planting areas will reach the anticipated remain uncertain.

Australian cotton: production may be below one million tons

In ABARES’s Dec report, 2022/23 Australian cotton planting areas are adjusted lower, and production may be lower to 980kt, but still high compared with the normal level of previous years. 2022/23 cotton supply will reduce.

3. Old story has finished, and new speculation starts to brew

The story of supply reduction caused by abnormal weather in 2022/23 season is basically finished, and the Russia-Ukraine conflict and several rounds of US Fed’s hike on interest rate has covered on the market for long time, but new round of speculation has started to brew. The major concerns are about the arrivals of Indian cotton and lower planting areas with weaker profits. Currently, planting condition of Brazilian and Australian cotton is gradually seen, and the speculation on planting areas in other countries may continue later. Recently, keep an eye on USDA’s March Prospective Plantings Report.