“Buy when no one cares, sell when there is a lot of buzz!” For Xiao Hong, who is long in cotton, this investment saying is a reflection of his cotton trading this year.
Xiaohong made a lot of profits from being long on cotton in the early stage, and made another small profit from short selling last week. Why did cotton futures rebound strongly after the sharp decline? Has the turning point come?
The reporter noticed that commodities began to rebound last Friday after a trend of decline. Cotton’s early decline was very large. The September contract fell from around 17,000 yuan/ton to as low as 13,560 yuan/ton in just about 10 days, a drop of about 20%. In the trading on Friday night last week, all Zheng cotton contracts rebounded to varying degrees. The main contract increased its positions by nearly 1,000 yuan/ton. After the opening on Monday, the price of the main contract rose rapidly. The positions first decreased and then increased, and finally closed at the daily limit. .
“Xinjiang ginning mills are facing the pressure of unsalable Xinjiang cotton, and the old crop purchase and storage policy is less than expected in terms of both volume and price. It is difficult to boost market prices and stabilize cotton consumption. As General Secretary Xi went to Xinjiang for inspection, it triggered The market’s speculation on subsequent cotton market policies has a positive impact on the market.” Wu Xinyang, cotton analyst at CITIC Futures, said that in addition, the shift in macro commodity sentiment has created an atmosphere for a rebound in cotton sentiment. Biden ended his first visit to the Middle East during his term in office, seeking to increase oil production to reduce high domestic inflationary pressures in the United States. However, he did not receive a clear commitment and fell short of expectations for his visit.
Galaxy Futures cotton analyst Liu Qiannan told reporters that judging from the price trend in previous years, 15,000 yuan/ton is basically the median price of cotton, while the processing cost of cotton this year is 24,000-25,000 yuan/ton. Cotton planting in the new year The cost is also above 17,000 yuan/ton. Whether in terms of absolute price or cost, when the price of cotton drops to around 13,000-14,000 yuan/ton, the value advantage of cotton begins to highlight. When the price drops to 13,000-14,000 yuan/ton, When / ton goes up or down, there will be a large inflow of value investment funds into the market.
What is the domestic and global cotton supply and demand situation?
In this regard, Wu Xinyang believes that the domestic cotton market maintains a pattern of weak supply and demand, and it is likely to continue in the next year. The loose supply situation continues, and the benefits brought by purchasing and stockpiling are relatively limited. Domestic cotton sales are still seriously lagging behind. At the end of June, cotton commercial stocks were 3.7222 million tons, which was 704,900 tons higher than the same period in 2020/2021. It was even higher than the 483,000 tons in the same period in 2019/2020, which was hardest hit by the global epidemic. 30 The purchase and reserve volume of 10,000 to 500,000 tons means that this cotton year will inevitably have high carryover stocks. In addition, cotton planting expansion is expected to take place in Xinjiang. The survey results show that the actual cotton sowing area in Xinjiang in 2022 will be 36.904 million acres, an increase of 1.344 million acres year-on-year, an increase of 3.8%. The weather for cotton planting in Xinjiang this year is suitable. The temperature is high and the weather is good. The cotton is growing well and the growth and development period is advanced. The cotton yield per unit area is expected to be higher than in previous years.
“Weak consumption is still the main contradiction and has not been effectively resolved. All links in the industrial chain, from cotton to gray fabrics and clothing, are facing the problem of destocking. Judging from the changes in production starts, profits and finished product inventory, we are still passively replenishing inventory. stage, although the prices of upstream cotton raw materials have been repeatedly reduced, and the spot profits of spinning have improved significantly, due to the limited purchase volume, high-priced cotton or high-cost cotton yarns are still the main products to be digested. Coupled with the weak impact of the end consumer market, the textile industry wants to To get rid of the passive situation of high inventory and weak orders, it may be necessary to actively reduce prices to remove inventory, which will also become one of the signals that prices have bottomed out.” Wu Xinyang said.
“In 2022/2023, global cotton production is estimated to increase by 3.85 million bales year-on-year, and consumption is expected to increase by only 130,000 bales. However, due to the sharp decline in beginning stocks, the ending stocks will increase slightly compared with this year. Compared with this year, The overall global cotton supply and demand in the new year is slightly loose. However, U.S. cotton supply and demand are still tight.” Wang Xiaobei, senior cotton analyst at Hongye Futures, said that the USDA report shows that in 2022/2023, U.S. cotton production is expected to drop significantly by 2.02 million bales year-on-year. , the ending inventory fell by 1 million bales year-on-year, hitting a new low in the past nine years; the ending inventory-to-consumption ratio fell by 5.1 percentage points year-on-year, hitting a new low in the past 12 years. However, U.S. cotton is currently in the growth stage, and there are still major changes in output. As of July 12, the drought degree and coverage index in the main cotton-producing areas of the United States was 228, a year-on-year increase of 210, and a month-on-month increase of 16; the drought degree and coverage index in Texas was 342, a year-on-year increase of 327, and a month-on-month increase of 342. Weekly increase of 30. As of July 10, the growth rate of U.S. cotton was 39%, an increase of 3 percentage points from last week and a decrease of 17 percentage points from the same period last year. Overall, the drought situation in the main US cotton-producing areas has intensified, and the growth rate of US cotton has been below 40 for three consecutive weeks.
Wang Xiaobei believes that global cotton supply and demand are looser than the previous year – production has increased and consumption has remained basically unchanged; domestically, supply and demand in the new year have not changed much compared to this year. Against the background of pessimistic global macroeconomic expectations, stagflation, and the continuous outbreak of the epidemic at multiple points, cotton consumption is not optimistic; in the absence of significant improvement in the sales progress of domestic downstream lint cotton, the sustainability of the recent rising market driven by an oversold rebound Hard to last. Of course, it will still be a long time before new cotton is launched, and the impact of weather changes on output expectations is still the focus of the market.
Is it a market reversal or a short-term rebound?
“From a macro perspective, currently…China’s CPI is still high, the Federal Reserve is still in the process of raising interest rates and the rate hike is expected to be relatively large, and most global monetary policies are also expected to tighten. The global economic growth is facing very strong downward pressure, and the demand for commodities is huge. The probability is weakening, and the trend of commodities is still relatively bearish. “Liu Qiannan said that the fundamentals of cotton are also bearish. First of all, the supply of cotton is relatively sufficient. As of the end of June, the national cotton commercial inventory was 3.72 million tons, an increase of 704,900 tons year-on-year. It is at a high level for the same period in recent years. From the reserves in recent days, The 100% transaction rate of cotton rotation also shows that ginners have a strong willingness to ship. In addition, there is also a supply of imported cotton. On the demand side, with the gradual relaxation of domestic epidemic prevention and control and the serious inversion of domestic and foreign cotton price differences, demand will Gradually improving, but the real situation is that the current downstream demand is still very poor, with few downstream orders and small orders, the operating rate of textile mills has dropped, and the gauze inventory of textile companies is high and continues to increase. The impact of Xinjiang cotton problems on the demand side has begun to become prominent. If the demand side If it cannot be improved, cotton will have no endogenous power to rise.
In Liu Qiannan’s view, whether from a macro perspective or a fundamental perspective, the general trend of Zheng cotton is still weak. However, in view of the upcoming textile peak season of Golden Nine and Silver Ten, from an absolute price point of view, cotton prices are already on the low side, and the price is getting higher and higher. The greater the downward resistance, the lower the room is not expected to be. In the short term, Zheng cotton will mainly follow the rebound of bulk commodities. Of course, if the government can introduce relevant policies later, the market may also bottom out.
Wu Xinyang believes that this surge will be more of a short-term rebound. The weak consumption situation has not been effectively resolved by sharp price drops, and we will face a more severe consumption situation in the future. Limited by the disorderly production capacity of the global textile industry and the blindness of operation and production, the textile industry will still face the crushing production capacity cycle and inventory cycle, and there is still room for a significant reduction in cotton consumption.
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