Could cotton linter reverse the downtrend?

Cotton linter market has gradually weakened since mid-Jun, with a sharp decline accelerating since mid-Jul, totaling a drop of nearly 800yuan/mt, significantly exceeding market expectations. Is it due to weakened downstream demand or collapsed upstream costs.

Due to increased soybean inventories in the U.S. and expectations of abundant production in the new crop year, the overall supply is sufficient, leading to continuous declines in U.S. soybean futures, which have hit new lows. A large volume of soybean has arrived at Chinese ports, pushing inventories to peak levels, highlighting market supply pressure. Recently, prices for soybean meal and soybean oil have plummeted, causing widespread declines in cottonseed meal and cottonseed oil prices. Cottonseed oil mills are increasing shutdowns and suspending cottonseed procurement, creating a significant oversupply in the cottonseed market. Additionally, increased imports of cottonseed from Australia and the U.S. have intensified the bearish atmosphere in the market. In Shandong and Xinjiang, cottonseed offers have continued to decline, which are 3,150-3,200yuan/mt for Xinjiang-origin cottonseed in Shandong and 2,450-2,500yuan/mt in Xinjiang, down 700yuan/mt since early Jun.

Recently, the oil and meal market has been sluggish, with cottonseed prices experiencing continuous sharp declines, arousing panics in the market. The cotton linter market is characterized by a strong wait-and-see atmosphere, while cotton linter pulp and refined cotton mill are mainly focused on digesting previous stockpiles. Recent purchasing activities have largely paused or shifted to a just-in-time buying approach. The supply-demand dynamic in the cotton linter market has shifted from tight to relatively loose, with prices under downward pressure. Currently, cotton linter for industry-grade refined cotton in Chinese mainland is around 4,800-4,900yuan/mt, and 4,400-4,500yuan/mt in Xinjiang, with a cumulative decline of 800yuan/mt since mid-Jun.

In summary, due to ample U.S. soybean supply and continued inventory accumulation of Chinese soybean, the supply remains ample. Recently, the oil and meal market has been weak, and under the dual pressure of reduced downstream demand and oversupply, coupled with the upcoming arrival of new cottonseed in Sep, prices continue to fall, triggering panic in the cotton linter market and leading to further price decline. A weak market situation is expected to persist in the short term.