[This Month’s Highlights] Domestic cotton prices rose month-on-month, and the price gap between domestic and international cotton narrowed.

[Future Trends] In the domestic market, textile enterprises are gradually resuming operations and production. With low inventories of raw materials and finished products, and amid improving consumption expectations, enterprises are showing a strong willingness to replenish their stocks. As a result, domestic cotton prices are expected to rebound and rise in the short term. In the international market, against the backdrop of a significant slowdown in global economic growth and an already relaxed supply-demand balance for cotton, international cotton prices are expected to face downward pressure and decline in the short term.

[Details]

(1) Domestic cotton prices rose month-on-month. This month, the domestic epidemic situation has gradually improved, market confidence has steadily recovered, and textile enterprises have shown increased willingness to purchase raw materials. According to data from the "China Cotton Industry Inventory Survey Report," as of early January 2023, 58% of enterprises were planning to purchase cotton, an increase of 0.2 percentage points from the previous month and 8.0 percentage points from the same period last year. In January, the average monthly price of 3128B-grade cotton in China was 15,226 yuan per ton, up 1.7% month-on-month but down 32.4% year-on-year. The main contract for Zhengzhou cotton futures (CF305) closed at 14,850 yuan per ton for the month, up 7.7% month-on-month but down 30.5% year-on-year.

(2) International cotton prices remained stable with a slight downward trend. This month, concerns about a global economic recession intensified significantly in the international market, and coupled with the U.S. Department of Agriculture (USDA) sharply lowering its forecast for global cotton consumption, international cotton prices declined. In January, the Cotlook A Index—equivalent to domestic Grade 3128B cotton—averaged 100.19 cents per pound for the month, down 0.8% from the previous month and down 24.1% year-on-year.

(3) The price gap between domestic and imported cotton has narrowed. The Cotlook A Index (equivalent to China’s 3128B-grade cotton) is equivalent to RMB 15,384 per ton, which is RMB 158 higher than the China Cotton Price Index (CCIndex) for 3128B-grade cotton per ton. The price gap has narrowed by RMB 537 compared to the previous month. The monthly average price of the imported cotton price index (FCIndex) for Grade M (equivalent to China’s 3128B-grade cotton) is 99.50 U.S. cents per pound. At a 1% tariff rate, the landed cost after duties is RMB 17,019 per ton, which is RMB 1,793 higher than the domestic price. The price gap has narrowed by RMB 634 compared to the previous month. Under the sliding-scale tariff, the landed cost after duties is RMB 17,158 per ton, which is RMB 1,932 higher than the domestic price. The price gap has narrowed by RMB 630 compared to the previous month.

(4) Cotton imports declined month-on-month, while textile and apparel exports rose month-on-month. According to customs statistics, in December, China imported 170,900 tons of cotton, down 4.0% from the previous month but up 25.4% year-on-year. From January to December 2022, China’s cumulative cotton imports totaled 1,928,600 tons, a decrease of 10.1% compared to the previous year. In December, China’s exports of textiles and apparel reached US$25.30 billion, up 3.7% from the previous month but down 16.3% year-on-year. From January to December 2022, China’s cumulative exports of textiles and apparel amounted to US$323.569 billion, an increase of 2.5% over the previous year.

(5) Spinning volume increased month-on-month, and yarn prices rose month-on-month as well. According to data from the National Bureau of Statistics, in December, China’s yarn production reached 2.579 million tons, up 5.7% from the previous month but down 7.5% year-on-year. From January to December cumulatively, China’s yarn production totaled 27.191 million tons, a decrease of 6.6% compared to the previous year. In January, the average price of the key product—32-count pure cotton combed yarn—was 23,321 yuan per ton, up 2.7% month-on-month but down 18.9% year-on-year.

(6) Global cotton production, consumption, and trade volumes have been revised downward. According to the January forecast by the International Cotton Advisory Committee (ICAC), global cotton production for the 2022/23 marketing year is projected at 24.65 million tons, a reduction of 440,000 tons from the previous month. Consumption is forecast at 23.03 million tons, down 8.1 million tons from the previous month. Trade volume is estimated at 8.66 million tons, a decrease of 720,000 tons from the previous month. End-of-period inventories have been revised downward to 21.58 million tons, with the global inventory-to-consumption ratio standing at 93.7%.

(7) It is expected that domestic cotton prices will stage a recovery-driven rebound in the short term, while international cotton prices will face downward pressure. On the domestic market: Following the holiday, textile enterprises have gradually resumed operations and production. Enterprises’ inventories of raw materials and finished products remain relatively low. Given improving consumption expectations, enterprises are eager to replenish their inventories, thus driving a projected short-term recovery-driven rebound in domestic cotton prices. According to data from the National Cotton Market Monitoring System, at the beginning of January, the average number of days of cotton inventory held by surveyed enterprises was approximately 28.5 days, down 3.3 days year-on-year and 6.3 days below the average level for the same period over the past five years. On the international market: The World Bank’s “Global Economic Prospects” report released in January lowered its 2023 global economic growth forecast to 1.7%. Both the U.S. Department of Agriculture (USDA) and the International Cotton Advisory Committee (ICAC) have significantly revised downward their estimates for cotton consumption in the 2022/23 marketing year. Against the backdrop of a markedly slower global economic growth rate and an overall relaxed cotton supply-demand balance, it is anticipated that international cotton prices will face downward pressure in the short term.