Before the May Day holiday, as good news came one after another, both domestic and foreign cotton prices ended their downward trend and rebounded, but this does not mean that the bottom of cotton prices has been consolidated. In a complex and ever-changing macro environment, the cotton market at this stage still faces many differences: after the epidemic has been brought under control in some countries, consumption has not picked up as expected; China is actively purchasing US agricultural products and fulfilling the first phase of the trade agreement content, but the relationship between China and the United States has been tense under the influence of the epidemic; low prices have given the market many positive expectations for the cotton supply side, but external factors have restricted the impact of low prices on the supply side.
The economic sequelae of the epidemic are beginning to show
Judging from overseas epidemic data, although no obvious downward trend in new confirmed cases has been found, and the epidemic is still spreading in populous countries such as India and Brazil, Italy, South Korea and other countries The number of new confirmed cases has dropped significantly, and the number of recoveries has also continued to increase, gradually entering a preventable and controllable stage. Therefore, governments in many countries have also put lifting of restrictions on the agenda, and controls have been gradually relaxed. Offline consumption, which had previously been sluggish, is expected to turn around and form fundamental support.
But after the lockdown is lifted, will the resumption of work and production in many countries bring about a recovery in global cotton textile consumption? Judging from the consumption situation during the domestic May Day holiday, it can be seen that consumption is still difficult to return to pre-epidemic levels. Tongcheng Tourism data shows that the scale of tourism consumption during this year’s May Day holiday reached nearly 60% of the same period last year. Fear of the epidemic still suppresses consumers’ enthusiasm for offline activities. However, for textile and clothing terminal consumption, the more important impact is the sequelae of the epidemic on the economy: the forced freezing of economic activities in the early stage led to a decrease in income, which directly reduced residents’ consumption capacity, inhibited non-essential consumption, and had a negative impact on future orders for the cotton spinning industry. The impact will continue.
The situation remains unclear and trade relations are complicated
Last Thursday’s The U.S. cotton export weekly report data is eye-catching: As of the week of April 23, 2020, U.S. upland cotton net contracts were 98,700 tons, an increase of 95,100 tons from last week. Among them, China signed 100,300 tons, canceled contracts for 4,300 tons, and had a net contract of 95,900 tons.
This means that even when global cotton spinning demand is weak, China is still actively purchasing US cotton. Combined with the content of the first-phase trade agreement, it can be seen that Sino-US trade relations are slowing down signs are strengthening. At the same time, if China continues to purchase, on the one hand it will help reduce global cotton inventories; on the other hand, while ensuring domestic cotton reserves, it will maintain the international competitiveness of downstream cotton textile products, which will help restore domestic cotton demand.
However, at this point in time, the uncertainty of macro risks is gradually increasing. As the epidemic continues to intensify in the United States, the discussion whether to continue the blockade is tearing the United States apart in order to keep the economy running. Trump also intends to “pass the blame” to China, casting a shadow on the relationship between the two countries. Affected by this, global stock markets fell sharply last Friday, and the offshore RMB exchange rate depreciated. The situation remains unclear, and Sino-US trade relations may once again influence market sentiment.
External factors restrict the transmission path of low prices
When cotton prices are close to Against the backdrop of historically low prices, the market has expectations of lower cotton supply in the future, which gives low-level cotton a certain resilience. However, external factors have restricted the transmission of low prices to the supply side. For domestic supply, although some cotton planting areas will be reduced in many places in Xinjiang due to land and water restrictions in the future, the Xinjiang cotton planting subsidy policy with a target price of 18,600 yuan/ton will continue to protect the willingness of Xinjiang cotton farmers to plant, and the planting area is expected to The reduction is limited. Under the framework of the first-phase trade agreement, China’s active purchases of U.S. cotton have boosted sales, which is a reassurance for U.S. cotton farmers who are in the middle of the planting season and stabilized their willingness to plant cotton. In addition, the epidemic has impacted the economies of many countries and created the current strong dollar environment, which will also inhibit the impact of low-priced cotton on the planting willingness of major cotton-producing areas such as Brazilian cotton farmers and Indian cotton farmers.
To sum up, the so-called benefits are still fragile in the face of the changing macro environment, which determines the demand side It takes a long time to repair. At the same time, we are currently in the new cotton planting season, but external factors restrict the transmission path of low valuations to the cotton supply side. Global cotton planting willingness in the new year may be relatively stable. In the short and medium term, cotton has insufficient upward momentum. </p
