Industrial Cluster: Cotton Price May Remain Low In The First Quarter Of 2025

Although the cotton planting area in China will decrease slightly in 2024, the weather conditions in Xinjiang will be better than last year as a whole. The cotton will grow well and the unit yield will increase. By the end of December, seed cotton harvesting had basically ended, and lint processing had also come to an end. The cotton production increase was basically clear.

It is estimated that the national cotton output in 2024/25 is expected to reach 6.32 million tons, an increase of 605000 tons or 10.59% year on year. On the whole, the increase in domestic cotton production this year made the contradiction of loose supply more prominent.

As of December 31, the cumulative processing volume of lint in 2024/2025 has reached 5.91 million tons. With the continuous increase of new cotton on the market, the commercial inventory of cotton has also continued to rise, maintaining the highest level in the same period of nearly five years in the fourth quarter. According to the monitoring, by the end of December, the national cotton commercial inventory was 6.71 million tons, an increase of 18.41% month on month and 20.53% year on year. Although ginning mills will gradually end lint processing in January, and the daily cotton output will gradually decline in the first quarter of 2025, 1% tariff quota has been issued in 2025, the cotton import volume will increase, and the cotton commercial inventory will remain at the highest level in recent five years. The supply pressure is still obvious. 　

In 2024, the peak season of the domestic textile market will be less prosperous and the off-season will be even weaker. The orders of downstream textile enterprises are insufficient, and the cotton yarn shipment of cotton textile enterprises is not smooth. In addition, the processing of cotton yarn continues to lose money. The yarn mill is forced to reduce the operating load to alleviate the operating pressure, and the cotton demand decreases accordingly.

In November, the starting load of Shandong cotton spinning enterprises began to decline. By the week of December 26, the starting load of Shandong cotton yarn enterprises had dropped to 60.72%, 3.6 percentage points lower than the same period last year, and 5 percentage points lower than the end of October (the highest starting load in the fourth quarter). In addition, because the demand expectation is not optimistic, textile enterprises purchase raw cotton more conservatively, and the inventory of raw cotton of textile enterprises drops and is at a low level, resulting in slow progress of new cotton sales. At the end of December, the raw cotton inventory of Shandong cotton spinning enterprises was 24 days, a year-on-year decrease of 13 days and a decrease of 10 days compared with the beginning of October.

Cotton prices may remain low in the first quarter of 2025

From the demand side, it is difficult for the demand side to show a bright performance in the first quarter of 2025, and it is difficult to form a positive boost for prices. In January, the downstream textile enterprises were not willing to make up inventory before the festival. With the approaching of the Spring Festival holiday, the purchase and sales of lint market will gradually decline. Affected by the Spring Festival holiday in February, the demand may be weak as a whole. Although March will enter the traditional peak demand season, the export of terminal products is not expected to be optimistic, which may suppress the demand for raw cotton.

From the supply side, in the first quarter of 2025, the commercial inventory rate of cotton will remain at the highest level in the same period of the past five years, and the cotton planting area is expected to increase, so the pressure on the supply side is still large. The cotton processing in the first quarter will be completed successively, and the commercial inventory will also enter the destocking cycle. However, the annual cotton production will be high, and the cotton import quota will be issued in 2025, which will promote cotton import. Therefore, it is expected that the approximate rate of commercial inventory will remain at the highest level in the same period of nearly five years, and the supply side will still be under pressure. In addition, March will usher in the new year of cotton planting. In 2024, due to the decline of cotton yield in Xinjiang, the cotton planting income will be relatively high, and the enthusiasm of cotton farmers will be boosted. It is expected that the cotton planting area in Xinjiang will recover in 2025, which will be bad for cotton prices.

From the macro level, the macro impact at home and abroad is too much, but considering that the demand improvement brought by the policy effect in the short term is not obvious, the macro positive impact in the first quarter may be limited. In September 2024, the Federal Reserve's interest rate meeting determined to cut interest rates by 50 basis points. Since the beginning of the interest rate reduction cycle in the United States, major central banks around the world have now entered the interest rate reduction stage. The increase in monetary liquidity will boost cotton practitioners' expectations of future demand growth, and will also promote the active investment in downstream and enhance the rigid consumption of cotton in the terminal market, The cotton market is supported by a certain positive macro market, but considering that the demand improvement brought by the policy effect is not obvious in the short term, the positive macro impact in the first quarter may be limited. In the long run, under the macroeconomic development trend, or gradually transmit to the actual demand, the cotton textile industry may restore its development toughness, which will have a positive impact on the cotton market.

To sum up, in the context of strong supply and weak demand, cotton prices will continue to fall in the fourth quarter of 2024. It is expected that in the first quarter of 2025, the cotton market will continue the pattern of strong supply and demand. In addition, the export of terminal products will face greater uncertainty. Although there are too many macro influences, the short-term macro demand will be boosted or limited, and the cotton market will be dominated by negative factors, so it is difficult for cotton prices to rise. Under the influence of the pessimistic situation of terminal exports, it is not ruled out that cotton prices will have a periodic downward trend.