CNCotton Weekly Summary (December 20-24)

This week (December 20-24), domestic cotton rally slowed. World cash price eased from highs. Cotton yarn and polyester staple continued to fall.

1. Domestic cotton rally moderated

As of December 24, cotton harvest progress reached 97.6%, down 2.1 percentage points from last year. Seed cotton delivery from growers to ginners reached 86.1%, down 6.5 percentage points from year ago. Ginning progress reached 83.3%, down 1.0 percentage points from year ago. Lint cotton sales reached 24.4% of total ginning, down 15.3 points. Xinjiang harvest and delivery neared completion. Cotton ginning reached 76.1%, down 12.2 points. Cotton sales reached 35.5%, down 13.3 points.

During the week ending December 24, many spinners have seen textile stocks rising and face increased financial pressure, which eventually impact purchase. Most merchants remain unwilling to sell. Plus a strengthening macro control, physical trade was light. On December 24, inland grade-3 seed cotton price was offered at 111.44 yuan/kg (25097 yuan/ton equivalent price of lint cotton), up 0.20 yuan/kg or 2.0% from week ago. The Xinjiang seed cotton pirce was 10.82 yuan/kg (23955 yuan/ton equivalent price of lint cotton), up 0.12 yuan/kg or 1.1% from week ago.  CNCotton B index, which represents average price of T328 in inland area, was 27687 yuan/ton, up 240 yuan or 0.9% from week ago. The Xinjiang T328 price was 27338 yuan/ton, up 35 yuan or 0.1% from week ago. ZCE January contract was 28185 yuan/ton, up 35 yuan or 0.1% from week ago. The CNCE January contract was 27652 yuan/ton, up 167 yuan or 0.6% from week ago.

2. World cotton price eased from highs

Tightening fundamentals sent ICE futures to limit-ups and reached new high since Civil War. Towards Christmas Eve, spec selling and profit taking, potential easing Indian export policy and stagnant physical offtake pressed futures to limit-downs and physical price retreated from highs. On December 24, ICE March contract was 148.12 cent/lb, down 2 cents or 1.3% from week ago. International Cotton Index (M) was 19 yuan or 0.1% lower at 29998 yuan per ton based on 1% import tax. The index is equivalent to 30275 yuan per ton based on sliding scale tax, down 18 yuan or 0.1% .

3. The cotton yarn and polyester staple price continued to drop

Anemic downstream demand, rising yarn stock forced mills to liquidate stocks. Cotton yarn price was pulled lower. Polyester staple received pressure from limited offtake and rising stock. But oil rally allowed polyester to rebound. On December 24, C32S was quoted at 33900 yuan/ton, down 200 yuan or 0.6% from week ago. Polyester staple was 12370 yuan/ton, down 250 yuan or 0.3% from week ago.

5. Outlook

The macro outlook is undermining cotton price. NDRC is taking tough measures to control price and speculation. Central Bank raised interest rate again on December 26. Fundamentally, physical trade is nominal. Sluggish textile sales in off-season, rebounding raw material price, potential early holiday schedules and expansion between cotton and polyester price, etc, are all negative for cotton price. Some large mills are turning to blend production to reduce cost. Domestic cotton rally is expected to slow further.