The spread of the global epidemic has not yet been contained, and the market outlook for Zheng Cotton, which is already in the bottom range of 10,000 yuan, is still full of uncertainties. Facing the current market, both long and short parties have clear views and have their own logical analysis system for ups and downs. Everyone is full of confidence in the future market, because the epidemic will eventually pass. The focus of the debate now is where the bottom is. Can we buy the bottom at this time?
It is indeed very risky to discuss bargain hunting in a bear market, because no one can accurately predict the bottom point. The only reference is the historical market. Currently, cotton has fallen to near historical lows. How much further is there? What about the downside?
The author believes that what bulls currently see is the sufficient confidence given to them by historical lows. After all, cotton is a high-cost cash crop, and agricultural products with such low prices cannot last long. Even if prices continue to dip, the downside from historically low levels will be limited. The current epidemic has restricted people’s consumption and production. As long as the epidemic passes, global economic activities will inevitably return to normal. The biggest disagreement now is not about the future rise of cotton, but when it will fall to the bottom. Therefore, there is a process of gradual building of positions by bulls in this range.
In addition, the bulls believe that domestic production and life have basically returned to normal, while foreign countries are basically in a closed state. Therefore, when consumption resumes, only China can operate at full capacity to meet demand. At present, major textile and apparel production countries such as India and Pakistan have adopted city closure measures to fight the epidemic, and lost orders are bound to be transferred domestically. Coupled with the impact of the oil trade war, crude oil prices have remained around US$20/barrel, and PTA prices have fallen below record lows. Under these conditions, it is unlikely that cotton prices will continue to fall sharply.
Of course, in the face of the current epidemic situation, except for daily necessities, other consumer activities have basically come to a standstill. According to China’s governance progress, the return to normal production and life abroad will continue to be delayed, which will have a huge impact on cotton consumption. Although cotton prices have fallen to near historical lows, the situation facing the industry has not yet reached its worst moment. At present, downstream textile companies still have orders for half a month. Once the companies reach the point where they have no orders to accept, I believe that the pressure on the entire industry will face the greatest test, and production suspensions and production restrictions will most likely occur. At this time, the price transmission mechanism will be further uploaded to the raw material side, so there is still room for further price declines.
Even after the epidemic, it will take a long time for global industries to recover, and commodity prices will have a long way to go to rebound. They will not show a “V”-shaped reversal like in 2016, and the risk of bargain hunting is too great. However, things always have two sides, dangers and opportunities coexist, and high risks also mean high returns. </p
