Why cotton linter prices tumble?

Cotton linter demand has been weakening since early-to-mid Mar. The price has stopped rising and started to drop with faster speed and deeper decline. The decrease has been more than 800yuan/mt so far and why does such big reverse occur?

1. Stronger inflation expectation and continued falling price of commodities

Bulk commodities have been shooting up this year against the backdrop of loose monetary policy and sufficient liquidities on the market. Prices of major products like copper, screw thread steel, paper pulp, textile raw materials, yarn and fabric have generally risen sharply. Driven by downstream demand and increase by inflation, cotton linter market has also surged by 1,500-1,800yuan/mt since the New Year’s Day.

However, the increase does not last long. With US 10-year treasury bond yield rising above 1.5%, the inflation expectation continues to increase and there are worries over global tightening liquidity. Bulk commodity market has been more volatile since Mar and due to continued falling prices of crude oil, cotton and PSF as well as the threat of new round of COVID-19 abroad and troubled EU-China and US-China Relations, the global economic recovery is slowing. Cotton linter price hiked to peak around Mar 8 and fell subsequently with faster decline.

2. Impact from imported cotton linter

Central banks of Brazil, Turkey and Russia raise interest rates recently, arousing worries over tightening monetary policy and leading to sharp fluctuation of bulk commodities. Soaring cotton linter price is strongly resisted by downstream segment and trades are thin at high price, coupled with limited demand growth. When imported cotton linter arrives on large quantity in particular, the lower price has greatly suppressed Chinese cotton linter.

According to customs data, cotton linter import of China totals 18,788.3 tons in the first two months of 2021, up 37.4% y-o-y. The import price averages at $275.66/mt (equivalent to around 2,100yuan/mt), down 18.45% on the year. China imports 1,013.1 tons of cotton linter from US during the same period, with average import price at $450/mt (around 3,400yuan/mt), which is far below the price in China local market.

To sum up, rising US 10-year treasury bond yield has aroused worries over tightening liquidity and coupled with the possible new round of COVID-19 abroad as well as troubled EU-China and US-China relations, bulk commodity market is much volatile recently. In the meantime, huge quantity of low-priced cotton linter imports are weighing on Chinese cotton linter price, and the downtrend is expected to continue in the short run.