The spot price is slowly recovering and the shock of Zheng cotton is intensifying
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Spot goods slowly recover, Zheng cotton’s volatility intensifies
Since May, Zheng cotton futures prices have been declining, and the center of gravity of futures prices has been moving downwards. The main 1109 contract received strong support near the previous low of 24,200 yuan, and is currently oscillating between 24,000 yuan and 26,000 yuan. As southern hemisphere cotton comes on the market, cotton supply pressure has been eased to a certain extent, but domestic cotton demand has not improved. The production restrictions and suspensions of spinning mills have not been fundamentally improved, which has become the key to restricting the current trend of Zheng cotton. factor.
Textile companies have a heavy backlog of finished product inventories, and many companies have restricted production and suspended production. At present, some small and medium-sized yarn mills are in a state of suspension of production and production restriction; although large-scale yarn mills have not suspended production, they mainly focus on short-term orders and fewer long-term orders. Most textile companies have a small inventory of raw materials and basically pick them up as they are used. Textile enterprises have a heavy backlog of finished product inventories, generally around 2 months, and have been affected by the recent decline in cotton spot prices. The sales situation of pure cotton yarn is poor, the price of yarn is constantly falling, and the operation of yarn mills is extremely difficult. At present, the mainstream transaction price of C32S cotton yarn is around 34,000 yuan/ton, and the lower transaction price of some manufacturers has been as low as 32,000 yuan/ton.
The pessimism in the spot market has gradually eased, and calls from all walks of life for stabilizing cotton prices are getting louder. Since April, most ginners have basically sold out their lint cotton. Companies that have not shipped goods in time are worried about huge losses and hope that cotton prices will stabilize. However, spinning enterprises have a serious backlog of finished product inventories and huge capital occupation, which has affected normal production. It is hoped that the spot price of cotton will stabilize, thereby reversing the yarn sales situation and resuming production. The gray fabric market remains weak, and some companies are actively looking for self-rescue measures and waiting for the downstream situation to improve. Domestic cotton farmers and cotton traders still have some cotton that they have not sold, which accounts for about 30% of the total. Most cotton farmers are waiting and watching, waiting for cotton prices to stabilize.
Inquiries from spinning mills are gradually increasing, and the transaction situation shows signs of improvement. According to traders, inquiries from spinning mills are gradually increasing, and some textile mills have begun to purchase cotton on a small scale. Although large-scale purchases have not occurred, it has shown that the market has loosened. It is expected that the quantity of cotton purchases will gradually increase from June to July, and the production capacity of spinning mills will be further restored.
From a technical point of view, Zheng Cotton has been experiencing wide fluctuations for nearly two weeks. The current price is clearly supported at the 24,000 yuan line, while the early gap at the 26,000 yuan line is under greater pressure. In recent days, the long-short game in this range of Zheng cotton has intensified, and the volume has increased, but it has not formed an effective breakthrough, indicating that Zheng cotton’s consolidation is not sufficient, and futures prices will continue to accumulate momentum.
To sum up, the pessimism in the domestic spot market has gradually eased, but the domestic spot market is still weak, and it will take time for textile companies to destock, and there is still a long way to go to restore production capacity of textile companies. Zheng cotton futures are still in a downward channel, but in the short term, futures prices will consolidate and maintain a wide range of fluctuations. (The author is an analyst at Green Futures)
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