The global cotton market seems to have received good news. The latest data from the United States Department of Agriculture shows that global cotton consumption exceeds cotton production by 1.1 times, the highest multiple since 1988.
Declining cotton stocks in China are one of the biggest factors. Data from the U.S. Department of Agriculture shows that China’s cotton demand exceeds its cotton production by 1.61 times. This is down from the gap high in late 2016, when the level was 1.7x, but still close to all-time highs.
Although the current shortage of cotton seems to be serious, there was a serious oversupply of cotton in the past. At the end of 2012, cotton demand was 0.87 times supply.
China’s current cotton consumption accounts for 32% of the world’s total. Before 2012, China’s cotton consumption once reached 40% of the world’s total, but then gradually shrunk.
Relevant industry organizations previously commented on China’s cotton storage and storage, saying that after the initial enthusiasm for the storage and storage, cotton also experienced a correction due to the decline in overall commodity prices, and the state reserve cotton auction market cooled down significantly. Although the state-owned cotton market has cooled significantly recently, rigid demand is still there, and the transaction situation is expected to improve in the later period.
Some industry analysts said that the inventories of small businesses can be used until around March 20, while the inventories of large and medium-sized enterprises are relatively sufficient, but most can be used until the end of March. At the same time, textile companies have good demand this year, with smooth sales and low inventories. Their demand for cotton is relatively strong, so companies have a strong desire to purchase in the early stages of stockpiling. Market positivity is expected to improve in the coming weeks.
(The picture shows that Zheng Cotton’s main contract 1705 fell below 15,000 yuan on March 22 and closed at 14,960 yuan/ton)
Regarding the recent weakness in cotton prices due to the selling of reserves, many people have lost confidence in the market. However, there are reports that Zheng Cotton may launch a counterattack in the near future? Is this another “good news” after the above-mentioned good news? Sure enough, today (March 23) Zheng Cotton’s main 1705 contract broke through the 15,000 yuan/ton mark and rose!
It is understood that because some traders engage in futures arbitrage trading, there are large variables in the proportion of valid forecast warehouse receipts that are eventually generated. This has also led to the recent decline of Zheng Cotton’s main CF1705 contract below the 15,000 yuan/ton resistance. One of the important reasons.
Although downstream textile mills receive orders for cotton yarn relatively smoothly, and finished product inventories are significantly reduced, and some manufacturers even experience shortages in supply of high-count yarns, high-matching yarns, and JC40S and JC60S, the spot price of cotton in 2016/17 is only 200-200 lower than before the Spring Festival. 300 yuan/ton (the pace of adjustment lags significantly behind futures). The terminal acceptance price of gray fabrics and clothing orders is still at the level before the Spring Festival. Therefore, although the number of orders for the yarn mills is large, low profits are restricting the rebound of Zheng cotton and spot listing prices. another major factor.
On March 21-22, Zheng Cotton’s main CF1705 contract fell below 15,000 yuan/ton, which had a greater impact on the confidence of bulls, cotton merchants, and cotton companies. The spot market is showing a polarized trend. On the one hand, the gross weight quotation of high-quality, high-grade Xinjiang cotton (including hand-picked and machine-picked) has only been reduced by 150-200 yuan/ton. There is a general reluctance to sell and resistance to falling. For 4-9 There is a strong expectation of a shortage of high-quality cotton in March; while some large traders purchase high-quality, high-spinnability lint cotton from the spot market and reserve cotton auction market for storage and wait for prices in the future.
On the other hand, low-quality, low-spinnability new cotton continues to fall under the pressure of reserve cotton to be put on the market. For example, the current quotations of “Double 28” and “Double 29” hand-picked cotton in Henan, Shandong, Jiangsu and other inland warehouses are generally at 16,000-16,200 yuan/ton, 16,300-16,500 yuan/ton (gross weight), but the price of real estate cotton of 3127/2127 (breaking strength 27 and below) is only 14,800-15,200 yuan/ton, and the price difference between the two exceeds 1,000 yuan/ton. Ton.
According to analysis, Zheng cotton contracts have entered the bottom of this round of cotton price reductions. The long and short sides will start a stalemate and decisive battle at 15,000 yuan/ton. The bulls will gradually regain the lost ground of 15,300 yuan/ton and 15,500 yuan/ton.
First of all, judging from the transaction prices of spot and reserve cotton, Zheng cotton is in an oversold state. From March 20 to 22, the spot gross weight of 3128 grade Xinjiang cotton in the basement was more than 16,000 yuan/ton, and the equivalent price of futures warehouse receipts should be more than 15,500 yuan/ton; while the average transaction price of reserve cotton on the 21st was equivalent to 15,899 yuan for the 3128 standard grade Yuan/ton, which is also higher than the CF1705 contract price of 500-600/ton;
Secondly, as a large amount of cotton reserves are rotated out, the cost of low- and medium-count yarns in spinning mills has declined significantly, the profit situation is gradually improving, and cotton demand will enter a fast track. On March 20 and 21, the average transaction price of reserve cotton was 14,733 yuan/ton and 14,637 yuan/ton respectively, but the prices of 21S and 32S cotton yarn on the market were 22,500 yuan/ton respectively.��23,500 yuan/ton, the profit of the yarn mill has improved significantly due to the use of reserve cotton;
Thirdly, by late March, the comprehensive cost of 3128/2128 lint cotton in Xinjiang had reached more than 15,800 yuan/ton, and the cost of moving it to the inland warehouse was no less than 16,200-16,300 yuan/ton (gross weight). In addition, textile enterprises, With the arrival of a new round of replenishment of high-quality cotton by traders, Zheng cotton will adjust from discount to premium, rebounding ahead of spot prices and matching.
Afterwords
To sum up, the editor believes that rising and falling is not advisable, and stability is king. Just like the previous voice of textile companies: the level of cotton prices is not the key. The key is that stable cotton prices can allow the market to operate well. Only then can textile companies replenish their inventory with confidence!
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