Ministry of Agriculture Releases Weekly Cotton Market Report: Cotton Prices Fall Both at Home and Abroad

The China Cotton Reserve Information Center of the Ministry of Agriculture yesterday released the China cotton market weekly report for the third week of September (September 15-19). According to the weekly report: domestic cotton prices continued to fall, foreign cotton prices fell, and domestic cotton yarn prices continued to fall.

I. Domestic cotton prices continued to fall

This week, the detailed rules of Xinjiang's target price subsidy policy were issued. The detailed rules reflect a relatively strong determination by the central government to let the cotton market play a decisive role in resource allocation, and domestic cotton prices continued to fall. On September 19, the average purchase price of grade 3 seed cotton in the interior was 3.46 yuan/jin (equivalent to a lint purchase price of 14,808 yuan/ton), up 0.05 yuan/jin from last week, an increase of 1.5%; the average purchase price in Xinjiang was 3.23 yuan/jin (equivalent to a lint purchase price of 13,528 yuan/ton), down 0.32 yuan/jin from last week, a decrease of 9%. The average sales price of standard-grade lint in the interior was 16,658 yuan/ton, down 131 yuan/ton from last week, a decrease of 0.8%, and down 2,627 yuan/ton year on year, a decrease of 13.6%; the average sales price of standard-grade lint in Xinjiang was 16,656 yuan/ton, down 131 yuan/ton from last week, a decrease of 0.8%, and down 2,856 yuan/ton year on year, a decrease of 14.6%. The settlement price of the Zhengzhou cotton futures November contract was 14,300 yuan/ton, down 400 yuan/ton from last week, a decrease of 2.7%, and down 6,805 yuan/ton year on year, a decrease of 33.9%. The average price of the November contract in the electronic matchmaking trading of the national cotton exchange market was 14,658 yuan/ton, up 233 yuan/ton from last week, an increase of 1.6%, and down 4,833 yuan/ton year on year, a decrease of 24.8%.

II. International cotton prices fell

This week, the detailed rules of Xinjiang's target price subsidy policy were issued, among which the intention of the Chinese government to activate China's cotton market was relatively strong, and international cotton prices fell. On September 19, the settlement price of the New York cotton futures October contract was 65.99 cents/lb, down 4.6 cents/lb from last week, a decrease of 6.5%. The International Cotton Index (M), which represents the average CIF price of imported cotton at China's main ports, calculated at a 1% tariff, was equivalent to an import cost of 12,190 yuan/ton in RMB, down 408 yuan/ton from last week, a decrease of 3.2%, and 4,468 yuan/ton lower than the domestic market, with the price spread widening by 277 yuan/ton from last week; calculated at the sliding-scale duty, the import cost in RMB was 13,930 yuan/ton, down 250 yuan/ton from last week, a decrease of 1.8%, and 2,728 yuan/ton lower than the domestic market, with the price spread widening by 119 yuan/ton from last week.

III. Domestic cotton yarn prices continued to fall

This week, trading in the domestic yarn and fabric markets was sluggish, and yarn prices continued to fall. On September 19, the quotation for 32-count pure cotton carded yarn was 23,950 yuan/ton, down 80 yuan/ton month on month, a decrease of 0.3%, and down 1,865 yuan/ton year on year, a decrease of 7.2%; the quotation for polyester staple fiber was 8,720 yuan/ton, down 160 yuan/ton month on month, a decrease of 1.8%, and down 1,330 yuan/ton year on year, a decrease of 13.2%.

IV. Analysis and Outlook

International cotton prices may continue to decline. This week, the Federal Reserve expected U.S. GDP growth of 2.0%-2.2% in 2014, down from the 2.1%-2.3% expected in June. In the euro area, the European Central Bank announced that the first round of its targeted longer-term refinancing operations (TLTRO) would amount to 82.6 billion euros, less than the market expectation of 100 billion-300 billion euros. On fundamentals, according to a report by the U.S. Department of Agriculture (USDA): from September 5-11, 2014, the net export sales commitment of U.S. upland cotton for the 2014/15 marketing year was 1.7 tons, a significant increase from the previous week and up 34% from the four-week average, with the main buyers being Mexico, Turkey, El Salvador, India, Vietnam and China (1,157 tons), while the main buyer canceling contracts was China, which canceled 24,000 tons of contracts. U.S. upland cotton export shipments were 23,700 tons, up 25% from the previous week and up 7% from the four-week average, mainly shipped to China (5,511 tons), Mexico, Vietnam, Turkey and South Korea. As of September 14, the U.S. cotton harvest rate was 6%, up 2 percentage points year on year and down 1 percentage point from the average of the past 5 years. Recently there have been reports that in the new year the Chinese government tends to encourage textile enterprises to purchase and use domestic cotton, and will issue new-year imported cotton quotas strictly and cautiously. It is therefore expected that international cotton prices may continue to decline.

Domestic cotton prices may continue to fall. This week, among the new commercial residential buildings (excluding affordable housing) in China's 70 large and medium-sized cities in August: 68 cities saw month-on-month price declines, 1 was flat, and 1 rose. The highest increase was 0.2%, and the lowest was a decline of 2.1%. Nineteen cities saw year-on-year price declines, 3 were flat, and 48 rose. The highest increase was 6.4%, and the lowest was a decline of 5.6%. In August, the number of cities with month-on-month price declines increased from 64 to 68; the number of cities with year-on-year declines surged from 3 to 19. On fundamentals, the detailed rules of Xinjiang's cotton target price subsidy policy were issued, and the detailed rules reflect a relatively strong determination by the central government this time to return cotton to the market. It is therefore judged that domestic cotton prices may continue to decline.

Attachment 1:

Table of domestic and international cotton and cotton yarn prices, September 15-19, 2014