Currently, downstream demand support is limited. As the off-season approaches, the spot market for flower yarn continues to weaken, and the price drop has limited stimulation for transactions. The winter orders for fabric factories are nearing completion, and there are fewer new spring and summer orders. The operating rate of spinning and weaving enterprises has dropped to the lowest level in the past three months, with a sharp decline in the operating rate observed in the last month, and finished product inventory has also passively accumulated. On November 25, the main contract for Zheng cotton closed at 13,955 yuan/ton, up 40 yuan.

The impact of the U.S. election on the cotton industry

Trump announced victory in the U.S. presidential election.

During the previous campaign, he stated that a 60% tariff might be imposed on goods from China. This move will have many impacts on the cotton industry. Firstly, in the medium to long term, increasing tariffs will lead to higher domestic textile and apparel prices in the U.S., suppressing domestic demand and negatively affecting global cotton prices. Secondly, it may intensify competition in the domestic market, increasing pressure on the price difference of flower yarn. Thirdly, a reduction in U.S. orders will lead to a decrease in imports of U.S. cotton, resulting in a simultaneous reduction in imports and demand in the domestic cotton balance sheet, which will have a neutral impact, with price pressure on Zheng cotton possibly coming from U.S. cotton. However, in the short term, it is necessary to pay extra attention to the expectation of increased tariffs, which may stimulate overseas wholesalers to stock up before Trump officially takes office, thus benefiting cotton prices.

Considering that Trump has set higher tariffs on our country, the competitiveness of our textile and apparel products in the U.S. market will decline, which may lead to a decrease in our share of the overall market in the U.S. for our country. For our downstream enterprises, the decline in export orders may force some downstream enterprises that mainly rely on external orders to face transformation pressure, needing to enter the domestic demand market, which may become more crowded, increasing pressure on the price difference of flower yarn.

Supply and demand expectations affect price trends, leading to differentiation.

Internationally, last week the energy and grain markets strengthened, the U.S. dollar slightly weakened, and U.S. cotton futures continued to rebound. The weekly export data for U.S. cotton was strong, helping the main contract recover to the 70 cents/pound level. However, high production expectations in Brazil keep global cotton production at a high level, and global weak demand remains unchanged. The supply and demand expectations for global cotton in the 24/25 season are relatively loose, which suppresses the upward space for cotton prices.

Domestically, the supply of new cotton is accelerating, while downstream demand is weakening, leading to a continuation of weak price adjustments for cotton. Overall, due to the processing and inspection progress of cotton being significantly faster than in previous years, the current domestic cotton supply is loose, and with the seasonal weakening of downstream demand, cotton prices are expected to continue to fluctuate weakly.

Last week, the volume of new cotton listed increased, and the main price of Zheng cotton showed weak adjustments.

On the supply side, the new cotton production for the 24/25 season exceeded expectations, with processing volume increasing significantly year-on-year. The new cotton harvest is nearing completion, and the acquisition cost is solidified, with short-term hedging funds suppressing rebounds.

On the demand side, the peak season has ended, downstream demand has declined, spinning mills are operating normally, and there is just-in-time purchasing at low prices. Overall, supply is strong while demand is weak, and there is no upward driving force for cotton prices. In the downstream textile market, the characteristics of the off-season are obvious, finished product inventory has accumulated, and the price difference between yarn and cotton has further narrowed. According to feedback from cotton spinning enterprises in Jiangsu, Zhejiang, and Shandong, new orders have decreased compared to the previous period, cotton yarn shipments have slowed down, and enterprises' spinning profits are insufficient, leading to tight cash flow.

Due to low raw material inventory and an early Spring Festival holiday, attention should be paid to the impact of downstream replenishment on orders. In the short to medium term, the possibility of Zheng cotton breaking previous lows is basically zero, as there is a support price for seed cotton acquisition below its intrinsic value. From a fundamental perspective, this year's seed cotton harvesting and sales are faster than the same period last year. With the arrival of the off-season, the operating rate of spinning and weaving enterprises has dropped to a three-month low. The probability of the Zheng cotton 2501 contract bottoming out between 13,800 and 14,500 yuan is relatively high, and it remains to be seen whether there will be a difference in stocking expectations before the end of the year.