Yesterday, the main contract of Zheng cotton broke through the 14,000 yuan/ton integer mark, hitting a nearly 5-month high. The bulls’ strong pull up surprised the market. Looking back at the rising mode since last Thursday night trading, the increase and speed are a bit unexpected. Recently, with the market’s acceptance of the positive phase one of the Sino-US trade agreement, the bullish mentality of the industry has been continuously boosted. With the release of macro-negative pressure, the supporting role of cotton costs on prices needs to be reflected in the futures market, so from this perspective, the rise seems reasonable. However, in just two working days, the price rose by nearly 1,000 points, making it difficult for cotton companies, which have experienced multiple rounds of plummets this year, to recover. Industry and speculative groups each seek their own interests. So what changes has the sharp rise in futures prices in recent days brought to the spot market?
It is understood that although futures prices have risen too fast, spot purchases and sales have slowed down. On the one hand, due to the sharp rise in futures prices, for cotton-related companies that are already slow to sell cotton, if the spot price rises in proportion, buyers will definitely resist, and may even create a situation where no one cares. Only when the buyer confirms the purchase price and completes the transaction can the real profit be realized. However, as the Spring Festival holiday approaches, downstream yarn mills have limited stocking needs, and the current raw material costs have increased. Some textile companies have begun to stop production and wait and see, and market inquiries have significantly decreased. On the other hand, as the Spring Festival approaches, it is difficult for textile companies to raise product prices. According to feedback from some large-scale companies, yarn prices have not been adjusted significantly. At present, the main focus is to clear warehouses in a timely manner and withdraw funds as soon as possible. Therefore, the cost of raw materials has moved up, and downstream profit margins have been compressed. From this perspective, the positive transmission of the industry is not smooth. In addition, this year, a large number of companies have locked in basis differences and sold lint cotton in the form of futures point prices. Now the futures price has risen sharply and rapidly. Some short orders have suffered serious losses, and the spot goods cannot be sold in time. It is difficult to hedge profits and losses, and losses are inevitable.
At present, the main price of Zheng cotton has basically covered the cost of Xinjiang cotton processing. Next, whether to enter the market for hedging or wait for the sale of spot goods has become a difficult problem for cotton companies. In any case, the price trend of Zheng cotton will become the key to its decision-making. Driven by the role of funds, cotton-related companies should do a good job in risk control through options, futures, etc. based on their own strength. Whether Zheng Mian’s phased breakthrough can be sustained remains to be seen. Remember that high places are always cold, and do not blindly chase the rise too much. </p
