At the end of February, under the pressure of multiple factors such as the decline in domestic and foreign stock markets and the slow resumption of work and production by cotton textile companies, the main contract price hit a new low of 12,105 yuan/ton since late May 2016. Although Zheng cotton rebounded sharply due to the strong growth of cotton spot price transactions in March, the restart of Xinjiang cotton rotation, and the high probability of the domestic central bank continuing to cut interest rates in March, some institutions and cotton-related companies have rebounded from the rebound strength. It is believed that Zheng Cotton needs to trade time for space to rise, and the conditions for a sharp rebound or even reversal are currently immature.
Why is Zheng cotton’s short-term rebound weak? The author summarizes the following points:
First, the spread of the COVID-19 epidemic from South Korea and Japan to the Middle East, Europe, and the United States has increased its impact on the global economy. my country’s textile and clothing exports may encounter a “late spring cold”. Judging from the survey, my country’s epidemic situation has reached an inflection point recently, and the resumption rate of large and medium-sized textile enterprises has increased rapidly. However, the shortage of orders has become the biggest obstacle to the recovery of the cotton, cotton yarn, and gray fabric markets (especially the poor performance of export orders from Europe and the United States).
Second, cotton procurement was lower than expected due to domestic epidemic prevention and control, poor logistics, and restrictions on personnel movement. As of early March, although the resumption rate of large-scale textile enterprises was relatively high, the production capacity recovery was only 50-60%, while the resumption rate of small textile and garment enterprises was less than 30%, and the resumption rate was even lower. Therefore, the plan to restock cotton and other raw materials continues. Postponed.
Third, domestic cotton supply is sufficient in 2019/20. According to statistics from the Cotton Logistics Branch of the China Cotton Association, as of the end of January, the total cotton turnover inventory nationwide was approximately 4.4869 million tons (excluding reserves and warehouse receipts), which was higher than the 123,400 tons in the same period last year. Among them, the commodity cotton turnover inventory of 43 warehouses in Xinjiang was 385.51 million tons, only lower than the 81,000 tons in the same period last year. Considering that Xinjiang’s cotton warehousing, transactions, and transportation were at a semi-stagnant state in February, it is estimated that the national commercial cotton turnover inventory as of the end of February will be no less than 4.2 million tons. Coupled with the 580,000-600,000 tons of bonded + non-bonded foreign cotton at the port (there may be discrepancies due to estimates), the supply of cotton is relatively sufficient from March to August.
Fourthly, as the CF2005 contract rebounded to above 12,500 yuan/ton, Zheng cotton warehouse receipts + effective forecasts remained high, equivalent to a total of 1.672 million tons of cotton. As Zheng cotton rebounds, the enthusiasm of processing companies and traders for deposits has declined, and hedging and risk aversion sentiments have continued to rise. </p
