In 2021, the market has many expectations for the commodity market. Driven by the outbreak of the global epidemic, the past year has been a year of great investment opportunities. The low point near 10,000 yuan/ton rose to 15,350 yuan/ton, an increase of more than 50%. Of course, what supports such drastic fluctuations in cotton prices is the inherent supply and demand logic of the commodity. Changes in the supply and demand logic have directed this drama. 2020 is destined to be an extraordinary year. From the domestic COVID-19 outbreak at the beginning of the year to the global outbreak, countries around the world have been affected by the epidemic and their economies have seriously regressed. In the first half of the year, China’s export-oriented companies were severely hit, with orders for some export products being canceled from time to time. Fortunately, the domestic epidemic has been quickly controlled, the economy has rapidly achieved positive growth in the second half of the year, and the business environment has been greatly improved. Due to the serious epidemic in traditional textile and garment making countries such as India and Bangladesh, textile companies have suspended production and orders have been forced to move to China. This has caused a rapid increase in orders from Chinese cotton spinning and garment companies, accelerating domestic demand for lint cotton, and cotton prices have experienced an unprecedented rise in many years. Quotes. Nowadays, with the strict control of corresponding measures and vaccination, the global cotton market is also beginning to transform from oversupply to undersupply. As the first country to take control and recover effectively, China has also reaped the dividends it deserves. Domestic cotton companies Orders have begun to flow back and exports have gradually become stronger. Coupled with the higher cost of domestic seed cotton this year, cotton prices have maintained strong support, and its own value may be underestimated relative to the current futures price.
Review of cotton futures market trends in 2020
1. The outbreak of the epidemic caused a sharp drop in cotton prices
In early January, China and the United States signed the first phase of the economic and trade agreement. Expectations and the replenishment of raw materials by textile companies have caused cotton futures prices to continue to rebound. The signing of the agreement has facilitated its implementation and has not exceeded market expectations. The tariffs already imposed by China and the United States have not been significantly reduced. The replenishment is coming to an end after mid-January. International The situation is complex and volatile, and the direction of Sino-US economic and trade relations is still uncertain. Cotton futures prices fell. As news of pneumonia of unknown origin spread at the end of January, market risk aversion intensified, and cotton futures prices fell.
The COVID-19 epidemic intensified during the Spring Festival, the economy basically came to a standstill after the holiday, and cotton futures prices fell off a cliff. Subsequently, the negative sentiment was released, and as the government took strict and powerful measures to prevent the epidemic and promote the orderly resumption of work and production, cotton futures prices rebounded tentatively. However, the spread of the overseas epidemic has intensified, and U.S. crude oil and U.S. cotton have continued to fall sharply, causing cotton prices to follow the external market and start a sharp decline mode.
2. Cotton prices began to counterattack due to multiple factors
In early April, the market panic about the global epidemic subsided, the economy was semi-closed and control measures were relaxed. The prices of domestic and foreign cotton are covering upwards. Domestic epidemic prevention and control is better than abroad, market confidence has recovered, and the resumption of work and production is accompanied by continued epidemic prevention and expectations for vaccine research and development. Cotton rebounded from a low level. In the first half of September, Sino-US economic and trade relations disturbed the market, among which the United States will impose sanctions The news about Xinjiang cotton caused cotton futures prices to fall sharply in stages. As the National Day approaches, the market is worried about the domestic epidemic during the holiday. There is a risk aversion in the market, and the cotton futures price rebound is weak.
During the National Day, demand in the downstream of the domestic textile industry chain picked up, and demand continued to rise after the holiday, and the industry The positive transmission of the chain is effective, and cotton futures prices have risen sharply. Afterwards, the demand cooled down and the market revised down the growth rate. While the overseas epidemic situation was still severe, the domestic epidemic situation recurred in autumn and winter, and cotton was weak and fluctuated. Later, with the recovery of global demand and the improvement of domestic textile and apparel demand, cotton fluctuated and rose. In late December, Under the pressure of the news about the mutation of the new coronavirus in the UK, cotton fell sharply again, and then the panic eased. Futures prices recovered upwards while the fundamentals of the domestic cotton market remained stable and relatively strong. 3. The global epidemic situation is expected to improve. The supply and demand pattern is expected to change. Of course, judging from expert predictions, it is expected that the global epidemic situation will be controlled and improved in the first half of 2021. On the contrary, this requires us to be vigilant, because the improvement of the global epidemic situation is likely to have an impact on some domestic commodities. This creates an unfavorable situation, including for cotton. Currently, countries around the world are actively injecting vaccines. Once the global epidemic is under control, the doors that were originally closed by various countries will be opened one after another, increasing the pressure on domestic epidemic prevention and control, and the virus transmission rate may increase significantly, so the epidemic prevention and control situation will become more severe. .
In addition, from the perspective of cotton, the global epidemic situation is gradually improving, and global consumption will be like domestic consumption. In the early stage, there was also a retaliatory rebound, and the power of the demand that had been suppressed for a year should not be underestimated. Unfortunately, in this global consumption feast, the profits shared by Chinese companies may be very limited. Because after the epidemic is brought under control, there will be a large number of global textile and clothing orders.��To our main competitors India, Pakistan and Southeast Asia. According to the latest news, Pakistan’s textile and apparel production is booming, and export demand has entered the best period after the epidemic. Brands and retailers have begun to shift their procurement sources to Pakistan, and the production of knitted garments and ready-made garments for export has reached full capacity. At the same time, some Chinese orders have begun to flow to India, and India’s floral yarn exports are also very strong.
Future cotton market outlook
Currently, Zheng cotton futures have approached 15,350 yuan/ton, The pressure at this point must be very high. Once it breaks through, it will continue to rise to the next high point.
Several major factors that may affect cotton prices in 2021:
1. The new crown epidemic in the United States, India, and Brazil is out of control; The cotton planting area has been significantly reduced. 2. The epidemic has caused obstruction of circulation links, problems in cotton planting management, or large-scale production reductions caused by climate reasons. 3. Inflation caused by excessive issuance of currency to stimulate the economy. 4. The outbreak has caused a severe economic recession and people’s consumption has dropped significantly. Through the above comprehensive analysis, the emergence of the current three situations may cause cotton prices to rise significantly, and the emergence of the fourth situation may cause cotton prices to fall, but moderate inflation will offset part of the decline. If the vaccine is effective and the global economy recovers strongly, foreign cotton prices will definitely follow a dazzling curve. Since the epidemic, with consumption shrinking, the support of foreign cotton prices has always been stronger than domestic cotton prices, mainly because my country’s large-scale purchases have played an important role. Once the demand for foreign cotton increases significantly, the relatively tight domestic supply situation will become more prominent. Driven by the sharp increase in foreign cotton prices, domestic cotton prices will inevitably rise. Although “black swan events” will still occur, based on the background of consumption recovery, Zheng cotton is expected to continue to rise in the first half of 2021, and is likely to replicate the resonance of domestic and foreign cotton prices rising in 2020.
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