[Introduction]
Affected by public health events after the Spring Festival, market expectations for global cotton consumption declined, causing a huge shock to the cotton market, with Zheng Cotton falling as much as 10.4%. Although downstream textile and clothing companies have resumed work one after another, short-term cotton demand is still weak, and market sentiment is sluggish. Cotton prices lack an effective driver, and it is expected that the low and volatile trend will continue in the short term.
During the Spring Festival, domestic public health incidents fermented, and Zheng cotton fluctuated violently after the festival. In February, Zheng cotton’s main force was low before the second test, but it did not fall below the low at the end of September 2019. At this point, the negative impact of public health events on the cotton market has basically been released. However, on March 9, due to the negative impact of the sharp drop in crude oil, Zheng Mian once again hit the daily limit. What caused Zheng Mian to repeatedly perform the “roller coaster” market after the holiday?
High inventory pressure limits the rebound space of cotton prices
Data Statistics show that as of the end of February, domestic cotton commercial stocks were 6.143 million tons, a month-on-month decrease of 2.5%, a year-on-year increase of 3.2%, and the highest level in the same period in the past five years. It can be seen that the supply in the cotton market is loose, and the short-term supply side does not support the rise in cotton prices.
The operating load of downstream cotton spinning enterprises has dropped significantly year-on-year, which has led to a decline in cotton consumption expectations
After the holiday, the market purchases and sales of lint and pure cotton yarns were light, and the drop in cotton prices increased the pressure on cotton yarns to cut prices. Although cotton textile companies have resumed work one after another, the operating load is still at a low level. According to statistics, in January 2020, the operating load of cotton spinning enterprises was 32%, a year-on-year decrease of 23%; in February, the operating load of cotton spinning enterprises dropped to 28%, a year-on-year decrease of 7% (if it were not for the Spring Festival holiday in February last year, the decline is expected to be even greater ). This year, the resumption of work of downstream cotton spinning enterprises has been delayed by one week to one month, which will have a greater impact on cotton consumption. Domestic cotton consumption in 2019/20 is estimated to be reduced by 500,000 tons from before the holiday to 7.6 million tons.
USDA’s February supply and demand report lowered its estimate of global cotton consumption in 2019/20 to 25.912 million tons, a decrease of 263,000 tons from the previous month. The decrease in consumption came mainly from China and Vietnam. The continued shrinking of demand drives cotton prices downward, and it is not ruled out that Zheng cotton still has room to explore in the short term.
Since the launch of new cotton last year, cotton prices have fallen to the bottom range. Without the protection of subsidy policies, domestic cotton planting has suffered losses. Funds are paying more attention to the undervalued cotton value. If it falls below 12,000 yuan/ton, it will definitely stimulate the demand for long funds. In addition, the increase in the amount of cotton imported by the state reserve has a certain underpinning effect on cotton prices, which provides strong support for the trend of cotton prices.
Generally speaking, under this situation of pressure on the top and support on the bottom, cotton prices are likely to continue to fluctuate at low levels. However, the international oil price has continued to fall recently, the international financial market has fallen one after another, and the market sentiment is pessimistic. The amplitude of the main fluctuations of Zheng Cotton may increase, and the risk will increase. In the medium to long term, as market confidence recovers, cotton may usher in opportunities for restorative gains. In addition, shrinking demand has been suppressing cotton prices for a long time. In the future, we need to pay attention to the performance of factors such as weather during the planting season and locust plagues on the supply side. </p
