How to view the price correction of cotton and cotton yarn
Last week (July 26-30), the cotton textile market was hot, and cotton and cotton yarn futures rose sharply. The Zheng cotton CF2109 contract once hit a high of 17,835 yuan/ton; the Zheng cotton yarn CY2109 contract surged to 27,520 yuan/ton. Most insiders said that cotton and cotton yarn have surged simultaneously, and that the growth rate of cotton yarn is stronger than that of cotton, which is rare in the market in recent years. Although there was a correction in Zheng cotton and Zheng yarn last Friday (30th), the upward trend of cotton and cotton yarn has not changed.
Intuitively speaking, this round of price increases began in late June. At first, cotton prices continued to rise. Downstream textile companies were forced to increase processing costs and gauze profits declined, so they raised prices to sell cotton yarn to balance profits. At present, it is normal for yarn mills to have low inventories of cotton yarn products. In order to ensure the supply of downstream goods, some yarn middlemen, stimulated by the psychological effect of buying up rather than buying down, accelerate the purchase of yarn, resulting in a rapid shortage of yarn. The increase will further promote the bullish enthusiasm of the cotton yarn market, prompting long funds to follow suit (the possibility of a squeeze is not considered here for the time being). The rapid rise in cotton yarn prices has once again stimulated the enthusiasm of upstream cotton to catch up. In addition, the market generally believes that a rush for cotton harvest in the new year is a foregone conclusion, and there is strong support for the rise in cotton prices.
According to the US Department of Agriculture’s July forecast report, China’s cotton consumption this year may recover to 8.7 million tons, and some institutions predict 8.5 million tons. This data has reached normal year levels. Therefore, under the premise of recovery of basic consumption, the cotton supply side is strongly expected to reduce production. In addition, Xinjiang’s ginning production capacity is increasing, and the direct impact of rushing to harvest cotton is to push up the cost of new cotton. Therefore, there is still room to realize the bullish market sentiment.
In the short term, mutated strains of the new crown virus at home and abroad have brought certain risks to the market. All parties in the market have become more cautious, and there have been certain adjustments in the prices of flowers and yarns. However, it is expected that the impact of the epidemic on the entire textile industry will still be limited. On the one hand, most people in the country have been vaccinated and the immune barrier is gradually improving; on the other hand, various regions have summed up certain experiences in early response to the epidemic, and their prevention and control capabilities have been greatly improved. Furthermore, the supply and demand situation at home and abroad is improving, and the pressure for cotton prices to rebound has decreased. Therefore, being overly pessimistic about this correction may lead to new misunderstandings.
How should textile companies restock cotton?
In recent trading days, the Zheng cotton CF2109 contract has fallen from 17,835 yuan/ton to 17,030 yuan/ton (the lowest point in the session). Some cotton textile mills and middlemen took the opportunity to add The intensity of purchasing at large prices and basis differences is high, while the performance of “fixed price” is relatively deserted.
Several cotton trading companies in Henan, Hubei, Shandong and other places said that since last Friday, some pending orders and low basis Xinjiang cotton resources have been traded relatively smoothly, with the inland bank 3128/3128 (breakage ratio strength indicator 27-28CN/TEX) Cotton in the 2020/21 season has been “swept out”, and textile companies are more enthusiastic about starting to replenish their stocks of raw materials at low prices.
Cotton processing companies, traders and cotton textile mills generally believe that after a short period of correction, consolidation and momentum, Zheng cotton will still run on the strong side and will still challenge the 17,500-18,000 yuan/ton range. Therefore, cotton companies “It’s better to buy goods at bargain prices sooner rather than later.”
So how should textile companies purchase cotton? The following four points are for reference only.
First, enterprises that spin high-count yarns receive warehouse receipts from Zheng Cotton. In the past two days, the 31-level “Double 28” Xinjiang machine-picked cotton in Xinjiang’s supervision warehouse has been quoted at 17650~17850 yuan/ton (or 3129, the specific indicators are different and the warehouses are different), even after deducting one month’s financial costs and transactions For delivery fees and other expenses, the cotton futures price is still “upside down” at 300~400 yuan/ton; in addition, warehouse receipt cotton is generally stored and the transportation conditions are good. According to statistics, as of July 30, there were 13,491 Zheng cotton warehouse receipts, a significant decrease of 3,152 from the end of June, a decrease of 18.94%, and the outflow of warehouse receipts has accelerated significantly.
Second, enterprises spinning medium and low-count yarns continue to participate in the auction of reserve cotton, purchasing reserve cotton or going to the port to “buy” low-priced foreign cotton. For yarn mills spinning counts of 40s and below, apart from slightly larger losses (gray fabrics should be tube-dyed rather than strip-dyed), the use of reserve cotton is not much different from the use of 2020/21 cotton; and due to traders’ bidding Most of the cotton reserves are 100% hedged, so Zheng cotton has plunged and fallen, and some traders are likely to lower the basis and hurry up shipments.
Third, with the 700,000 tons of sliding-duty cotton import quotas being issued in batches and one after another, the quotations of foreign cotton that have been cleared at the port may have to fall, and the price difference between the same-quality Xinjiang cotton in mainland warehouses has widened, and the bargaining power and space of cotton spinning mills have improve.
Fourthly, in August, cotton processing enterprises in Xinjiang have entered a critical period for machine maintenance, raising acquisition funds, and repaying loans. Some ginneries that still have a small amount of lint in stock may clear their warehouses and ship goods. The probability of “missing” is high.
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