Could rising price of cotton spur cotton linter?

Recently, Chinese cotton, cottonseed, and cotton linter markets have shown divergent trends with distinct price movements. Cotton market has remained relatively firm with rising prices, cottonseed market has weakened with falling prices, and cotton linter market has been in a stalemate, with prices caught in a dilemma.

This year, due to a significant reduction in cotton imports (433kt in Jan-May, a year-on-year decrease of 74%), declining commercial inventories in China, tighter supply, and market expectations of a supply gap, both ZCE cotton futures and Chinese spot cotton prices have strengthened significantly recently. The price of cotton 3128 has broken through the 15,000yuan/mt mark, showing an obvious upward trend.

Unlike the trend of cotton, in the later stage of 2024/25 crop year, although the supply of cottonseed has also decreased and manufacturers have the willingness to support prices, cottonseed oil and delinting mills are under great cost pressure with low operating rates. Moreover, the new cotton harvest is not far away, leading to an overall loose supply-demand balance. Since late Jun, the cottonseed market has weakened, with prices under pressure in Xinjiang and Shandong. Currently, the price of cottonseed in Xinjiang has dropped to around 2,600yuan/mt, with a decrease of 60-100yuan/mt.

While cotton prices are rising and cottonseed prices are falling recently, cotton linter market has remained relatively stagnant. Affected by factors such as repeated tariff policies, intensified geopolitical conflicts, and loose supply-demand fundamentals this year, cotton linter prices plummeted significantly after mid-Feb and have lingered at a low level recently. Although both cotton linter and cotton are agricultural products, their price fluctuation trends are similar in the long term, but they may not align in the short term due to differences in supply and demand. In addition, according to historical data over the past decade, the proportion of cotton linter prices to cotton prices hit a low of 21.3% in Jun 2018 and a high of 45.5% in Oct 2021. Currently, the price of Chinese cotton 3128 is 15,000-15,100yuan/mt, and the price of cotton linter for industry-grade refined cotton inland is 3,700-3,800yuan/mt. The proportion of cotton linter prices to cotton prices is around 25%, which is in a relatively low range.

To sum up, before new cotton arrives in Sep, the price trends of cotton, cottonseed, and cotton linter will continue to diverge due to differences in their respective supply and demand fundamentals. The significant reduction in cotton imports and low inventory in China will provide obvious support for cotton prices amid the supply-demand gap. Due to processing losses in cottonseed oil mills and delinting mills, cautious trading in cottonseed, the approaching new cotton harvest, and the expectation of a bumper cotton crop in the new season, the supply of cottonseed is expected to be loose, putting pressure on prices. Cotton linter prices are expected to show a weak and stable trend.