On April 8, Zheng Cotton experienced a rare surge. Against the background of the global effort to fight against the new coronavirus epidemic, the intraday increase was indeed unexpected. There are different opinions on the reasons for this surge. The market is like this, there is no love without reason, and there is no hate without reason. Of course, we should stay clear-headed and take precautions during a big rise, and we should also stay calm during a big fall and not miss every opportunity. There must be some reasons for Zheng Mian’s daily limit increase today, but what is the real logic behind the increase? It is estimated that not many people can judge accurately, otherwise it will not be just a melon-eater.
Supply remains stable and demand will recover in the future. The author believes that from a long-term perspective, cotton’s rise is certain (it’s just a question of the size of the upside). According to the cotton planting intention data of the National Cotton Market Monitoring System, China’s intended cotton planting area in 2020 is 45.501 million acres, a year-on-year decrease of 2.442 million acres, a decrease of 5.1%. Among them, the intended cotton planting area in Xinjiang is 34.759 million acres, a year-on-year decrease of 1.6%. The stability of the cotton planting area determines that the supply remains normal, so after the new crown epidemic, downstream demand will inevitably drive up cotton prices.
Customer orders have decreased and short-term demand has been insufficient. From a short-term perspective, cotton prices are still facing considerable pressure because fundamentals are not supportive. According to the author’s understanding, some large-scale textile companies have very sufficient pre-production inventory and there will be no purchase demand before new flowers come out. These corporate orders are mainly for overseas markets. Affected by the epidemic, customers have basically postponed new orders, resulting in corporate orders that can only be maintained until April. At present, in order to stabilize the workforce, companies are producing at full capacity. If subsequent orders cannot keep up and the market continues to deteriorate, they will be forced to take production reduction measures.
The deadline for the “big exam” has been reduced, and textile companies have reduced production in response. Compared with large textile enterprises, the production and operation of small and medium-sized textile enterprises will be more difficult. During the communication with the company, I learned that before March, the company sold at the same price and there was no inventory pressure. After entering April, the production pressure of enterprises gradually increased, and downstream customers did not purchase cotton yarn, resulting in product inventory accumulation. In addition, what puts greater pressure on textile companies is the sharp decline in yarn prices. With the reduction of downstream orders, price reduction has become a helpless move among companies to compete for limited orders in the market. In March, the yarn price dropped by nearly 1,000 yuan/ton, and in early April, the yarn price had already dropped by several hundred yuan. The rapid decline put great pressure on the company, and it is expected that the biggest hurdle will come from April to May ( When sales pressure reaches its maximum), whether the company can successfully pass the “big test” is a problem that most companies must face. </p
