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Major events of Chinese cotton market in 2023

2023-12-21 08:24:24 CCFGroup

In January-September 2023, Chinese cotton prices were on the uptrend overall, but declined quickly from October-November, and stabilized temporarily in December.

The rise in January-September was mainly based on: 1. after the re-opening from the pandemic, industrial and speculative replenishment increased apparently in the first half year of 2023; 2. 2023/24 Chinese cotton production was expected to reduce and there was also expectation of competition for seed cotton procurement with lower planting areas and extreme bad weather; 3. Chinese commercial cotton stocks gradually tightened. The reasons for the quick decline from October: 1. The improvement of state cotton auction that was implemented from end July on the Chinese supply was gradually seen; 2. There was no competition for seed cotton procurement as expected, so speculators started to reflect the trend earlier; 3. Downstream demand was obviously unfavorable, and commercial stocks of cotton yarn were high.

ZCE major cotton contract once reached the highest of 17,905yuan/mt and the lowest of 13,715yuan/mt this year. By December 14, 2023, Chinese cotton 3128 price rose by 1,455yuan/mt or 10% from December 30, 2022, and ZCE cotton futures climbed up by 1,115yuan/mt or 8%.

Following is the major events of Chinese cotton industry in 2023.

Major events of Chinese cotton market in 2023
Month	Event
Nov 2022-Feb 2023	Market sentiment recovered after the re-opening from the epidemic in China.
Nov 2022-Feb 2023	On Feb 2, 2023, ZCE major cotton contract reached a periodical high of 15,275yuan/mt, up 3,005yuan/mt or 24.5% from the lowest of 12,270yuan/mt.
Feb	The strong expectation and weak reality on consumption was recovered gradually. After the holiday, gining volumes of Xinjiang cotton increased and production was higher than anticipated,so ZCE cotton moved lower.
Mar	Silicon Valley Bank went bankruptcy and Credit Suisse was taken over in a crisis.
Mar	The banking system issue in Europe and the United States made market players pay attention to the lagging influences of US Fed interest rate hike.
Apr	Chinese cotton planting areas were expected to reduce, and the market began to trade the expectation of seed cotton procurement competition.
Apr	Xinjiang cotton target price was set at 18,600yuan/mt in 2023-2025, but Xinjiang cotton was subsidized with a fixed production of 5.1 million tons.
May	Extreme weather appeared in major cotton producing areas of Xinjiang.
Jun	The tight commercial cotton stocks in Xinjiang warehouses aroused market attention.
Jun	Rumors were in circulation about the state cotton reserves sales, but there was no announcement by end Jun.
Jul	The tight commercial cotton stocks in Xinjiang warehouses continued to trigger market attention.
Jul	The announcement about state cotton reserves sales and allocation of additional 750kt sliding-scale duty quotas was released.
Aug	RMB depreciated and macro enviroment was unfavorable. ZCE cotton declined in the first half month of Aug, and later, market sentiment eased and ZCE cotton continued to rise.
Sep	ZCE major cotton contract rose to the year-highest of 17,905yuan/mt in early Sep.
	On the night of Sep 2, the daily selling volumes of reserved cotton increased to 20kt, and on Sep 4, ZCE cotton slumped after touching the year high level.
	In end Sep, the market traded the expectation of seed cotton procurement competition again.
Oct	ZCE cotton turned down quickly after reaching a high of 17,815yuan/mt as there was no anticipated seed cotton procurement competition, and seed cotton prices also ticked down. Downstream cotton yarn was undersold.
Nov	ZCE cotton continued to move downward, and in mid-Nov, the state cotton reserves sales ended.
Nov	ZCE Jan and May cotton contracts declined to a periodical low on Nov 28. A few large enterprises started to purchase large quantity of cotton at fixed prices.
Dec	Market sentiment eased with the improvement in downstream markets.

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