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Insight | Time: Mar 21 2023 3:24PM  Editor:Monica Jiang
Cotton linter moving downward amid prominent macroeconomic risk
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Cottonseed price has been dragged down by the risks of macro economy and poor demand recently. Cotton linter market participants are also cautious about procurement and sales, and prices are slipping in fluctuation. At present, the proportion of cottonseed in the price of cotton linter has risen above 77%, which is much higher than the level of the same period last year.



Due to the bankruptcy of Silicon Valley Bank in the United States and the ferment of the Credit Suisse crisis, there is strong risk aversion in the market recently, and the global "butterfly effect" has emerged. The prices of crude oil and ICE cotton futures have plummeted, and the processing volume of cotton in Xinjiang has exceeded 6 million tons in 2022/23 crop year. The supply pressure is gradually emerging, and prices of cotton spot and futures in China local market are under pressure. Recently, sales of cotton by-products have been slow, and prices keep weakening. Cottonseed oil plants are under increasing pressure to lose money, and cottonseed prices continue to drop. At present, the spot price of Chinese cotton 3128 is about 14,400yuan/mt, and the price of cottonseed in Hebei and Shandong is about 3,400yuan/mt, with the decline widening somewhat.



Affected by the macro economy and restricted by the supply-demand relationship, cotton linter market keeps weak recently, and the price has been falling in fluctuation, returning to the level before the Spring Festival. At present, the price of cotton linter for industry-grade refined cotton in Xinjiang is 3,800yuan/mt, and 4,400yuan/mt outside Xinjiang, which has lost ground by more than 600yuan/mt since early and mid-Feb.



From the perspective of the proportion of cottonseed and cotton linter, the current percentage of cottonseed to cotton linter price has risen to more than 77%, which is much higher than the figure of about 50% in the same period last year, resulting in a sharp decline of spot profit of cotton linter, significantly lower than the comparable 2022 level.


To sum up, the Fed has entered the strongest interest rate hike cycle in 40 years since 2022, exacerbating the bank liquidity crisis. The macro risk factors have become prominent recently, coupled with rising risk aversion in the market. The crude oil and cotton prices have slumped, and cotton by-products have edged down as well. Cottonseed oil plants have suffered losses in processing, and many small and medium-sized ones have been shut down, dragging down the price of cottonseed. Cotton linter market is covered with strong wait-and-see sentiment, and prices are relatively weak. The current banking crisis in Europe and the United States has not yet been resolved, so the price is easier to fall than to rise in the short run.

[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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