BROS(SH:601339) GUOTAI HAITONG SECURITIES·2026-01-18 08:09Investment Rating - The report assigns an "Accumulate" rating for the industry [2] Core Insights - The supply contraction from two major cotton-exporting countries has been established, with a downward revision in U.S. cotton yield and the first decline in Brazilian cotton production and area in five years [3] - U.S. cotton prices are showing significant bottoming characteristics, with ICE 2 cotton futures significantly below planting costs and basis signals confirming this trend [3] - The core variable is anchored in Brazil, with multi-dimensional data confirming the inevitability of production cuts [3] Summary by Sections Supply Dynamics - The global cotton supply is reaching a critical turning point characterized by a "double reduction" pattern. The USDA's January 2026 report indicates an 8% downward revision in U.S. cotton yield to 856 pounds per acre, leading to a 2% decrease in total production compared to December forecasts. This has alleviated inventory pressure [5] - Brazil, as the world's largest cotton exporter, is experiencing a termination of its supply expansion cycle. The CONAB report predicts a 2.8% reduction in planting area and a 6.3% decrease in production to 3.82 million tons for the 25/26 season, marking the first reduction in both area and production in five years [5] Price Dynamics - U.S. cotton prices have been in a prolonged downturn for nearly three years, with current ICE 2 cotton futures around 65 cents per pound, placing it in the 20% historical low range since 2015. The current price is significantly below the average planting cost of approximately 80 cents per pound, indicating limited downward price potential [5] - Historical data shows that the basis for U.S. cotton has reached a low point, with high-quality cotton exhibiting a positive basis in January, suggesting a structural basis recovery as a leading indicator for mid-term price increases [5] Investment Recommendations - The report is optimistic about the performance elasticity of Bailong Oriental under the upward driving force of U.S. cotton prices. The expected downward revision in U.S. cotton production and the end of Brazil's capacity expansion provide a solid foundation for U.S. cotton price support [5] - The report recommends Bailong Oriental, which holds low-cost cotton inventory that will release significant profit elasticity as cotton prices rise. The increase in raw material prices is expected to boost yarn sales prices and significantly restore gross margins through inventory appreciation in a positive basis environment [5][6]