Why cotton linter prices plummet?

Recently, the commodity markets have experienced a widespread decline. Panic has spread in the cotton and cotton linter markets, leading to a rapid drop in prices. In the past month, both of them have fallen by over 1,000yuan/mt.

Last Friday, the U.S. released non-farm payroll data that fell far short of expectations (the increase in employment hit new lows of 114,000 since Dec 2020, lower than the expected 175,000), with the unemployment rate hitting 3-year high of 4.3% since Oct 2021. This intensified fears of an economic recession, causing global stock markets to plunge, the U.S. dollar to weaken significantly, and the Chinese yuan to surge. The overall macroeconomic atmosphere has become pessimistic, leading to a sharp rise in market panic and a significant downturn in the commodity markets. Additionally, with sufficient supply and the pressure of a bountiful harvest in the new crop year, the prices of cotton, cottonseed, and cotton linter have all significantly dropped. The price of 3128 cotton spot has fallen from 15,500yuan/mt in mid-July to 14,400yuan/mt currently. During the same period, cotton linter for industry-grade cotton in Xinjiang has decreased from 5,100yuan/mt to around 4,000-4,100yuan/mt, with a drop of more than 1,000yuan/mt in more than 20 days.

Given the bearish macroeconomic outlook and the impact of supply surplus expectations, the bearish sentiment in the cotton and cotton linter markets has intensified. Downstream cotton linter pulp and refined cotton companies are increasingly hesitant, generally avoiding procurement and opting to delay or suspend purchases. With the upcoming arrival of new cottonseed and cotton linter in Sep, the current price of cotton linter has quickly fallen to levels seen before the National Day Holiday of the previous year.

In summary, amid a bearish macroeconomic environment, significant declines in the commodity markets, and ample supply of U.S. and South American soybeans, the global soybean supply is abundant. With a large influx of soybeans into China (up to 11-12 million tons in Jul-Aug) and increased pressure on the inventory, short-term supply pressure remains high. The oil and meal markets are depressed, and there are no clear signs of stabilization in the cotton, cottonseed, and cotton linter markets. It is advisable to remain cautious and take a step-by-step approach.