Why cotton linter stabilizes amid a sharp decline in cotton price?

Recently, Chinese cotton prices have seen a significant decline, with a drop of nearly 1,000yuan/mt in just over ten days. Cottonseed prices have also been adjusted downward accordingly. However, cotton linter market remains relatively stable without great price fluctuations.

Under the constraints of multiple factors such as the sharp drop in ICE cotton futures that has fallen to nearly a five-year low, briefly dropping below 70 cents/lb and the bearish supply and demand situation, ZCE cotton futures and Chinese cotton spot prices have plummeted continuously in recent days. Among them, ZCE cotton futures prices have fallen from around 15,500yuan/mt at the end of May to around 14,400yuan/mt currently, and the spot price of cotton 3128 has dropped from 16,400yuan/mt to 15,300yuan/mt during the same period, with a decline of over 1,000yuan/mt. As a result, the wait-and-see sentiment in the cottonseed market has risen recently, with prices in Shandong and Xinjiang following down. Xinjiang cottonseed prices have fallen from around 3,100-3,150yuan/mt at the end of May to around 3,000-3,050yuan/mt at present.

*Note: The data for 2024 is up to June 18, 2024.

Affected by the slumping Chinese cotton prices, the weakening cottonseed market, and the decline in soybean oil and soybean meal futures prices, the recent activity in the cotton by-product market has been poor. Cottonseed oil and cottonseed meal prices have remained stable to slightly lower, with cottonseed oil mills facing losses and many oil and delinting mills in Xinjiang reducing or stopping production. The output of cotton linter is limited, leading manufacturers to continue to quote firmly, resulting in minimal price fluctuations. However, as shown in the table above, historical data shows that there is rarely a complete divergence in the trends of cotton linter and cotton prices. Although the magnitude of fluctuations may vary throughout the year, the overall trend of price movements remains consistent. Therefore, 2024 may be an extremely unusual year.

In conclusion, under the heavy pressure of ICE cotton futures and bearish supply and demand factors, Chinese cotton prices began to plummet significantly in mid-Apr, accelerating in recent days, with a short-term tendency to oscillate towards the bottom. As a result, cottonseed prices have followed suit, while cotton linter producers quote firmly with limited output. However, with the constraints of increased imports of cotton linter and the standoff between long and short positions, narrow price fluctuations are predominant.