Last week, markets continued to trade in expectations of a global recession, with commodities falling across the board. However, commodities generally rebounded on Friday night, with cotton leading the gains.
The cost center shifted downward and the supply and demand pattern weakened. PTA fell by more than 15% on a weekly basis.
Since June 10, the center of gravity of PTA prices has continued to fall from highs, with a drop of more than 30%, and has now fallen to the level at the end of January this year. Last week, PTA’s decline accelerated, with a weekly decline of 15.30%, leading the decline in the polyester chain, and then rebounded by more than 3% to 5,488 yuan/ton on Friday night.
Zhou Ao, an energy chemical researcher at Everbright Futures, said in an interview with a reporter from Futures Daily that due to the downward shift in the cost center, PTA prices have continued to fall recently. The current market is still trading in expectations of a global economic recession. Oil prices are weak. At the same time, the economics of aromatics oil blending have significantly weakened, and PX’s excess profits have begun to squeeze out.
From the perspective of crude oil price trends, international crude oil prices have oscillated back since mid-June, with Brent crude oil futures and WTI crude oil futures falling from above US$120/barrel on June 10 to US$101.13/barrel and US$97.57/barrel respectively. barrels, which fell 5.6% and 6.9% respectively last week.
Ren Junchi, a polyester researcher at CCB Futures, also told reporters that PTA fell sharply after June, mainly because the Federal Reserve violently raised interest rates in June after U.S. inflation data exceeded expectations, shifting from the 50 BP rate hike expected by the market to a rate hike. 75 BP, while the market is worried that the Federal Reserve will continue to raise interest rates by 75 BP in July. Under the operation of the Federal Reserve, the market began to trade in recession expectations, and the impact was not only directed at stocks and bonds, but also spread to commodities. Crude oil and non-ferrous metals, as products with strong financial attributes, are the first to be affected. As the chemical product most closely related to crude oil, PTA is naturally difficult to escape alone.
Since entering July, Zhou Ao said that the weakening supply and demand pattern of PTA itself has also accelerated its decline. Although the supply side of PTA is currently shrinking significantly, such as large-scale installations in South China and East China, the load has been reduced. However, under the circumstances of high-temperature power restrictions and weak terminal demand, there are expectations for further production cuts of polyester, which has continued to suppress the demand side of PTA. .
“The current operating rate of PTA terminal looms is at a low level for the same period in the past 10 years. In addition, the weather is hot in summer and power cuts have begun in some areas. The market has insufficient expectations for the weaving load. It is difficult to transfer polyester inventory downstream, and polyester factories are facing high demand at the same time. Due to the pressure of inventory and low profits, production may be reduced by another 10% on the original load, and the willingness to purchase PTA is insufficient.” Ren Junchi said that the consumer side has further weakened and some suppliers are willing to ship, which has led to the accumulation of PTA inventory pressure in July. Increase, PTA supply and demand weakened, driving PTA to become the leader in the decline of chemical products.
After experiencing an accelerated decline last week, PTA rebounded by more than 3% on Friday night. The reporter learned that the subsequent evolution of crude oil prices at the cost end of PTA will still be the core factor affecting its price trend. At the same time, PTA will also usher in the peak season of “Golden Nine and Silver Ten” in the later period.
Ren Junchi believes that after PTA experienced a recent stampede-like decline, market sentiment has been further released. From a cost perspective, crude oil supply and demand fundamentals remain tight. After Biden’s visit to Saudi Arabia, there are no signs of Saudi Arabia’s crude oil production increasing, there is no sign of relaxing sanctions on Iran, the U.S. shale oil production is slowly increasing, and it has become an indisputable fact that the Russian crude oil supply center has moved downward. The overall supply of crude oil is tight. Moreover, it is currently the peak travel season, and crude oil consumption is at a high level. Overall, crude oil supply and demand are generally strong, PTA cost support will be further realized, and there is limited room for continued decline.
“Judging from the subsequent changes in PTA fundamentals, there is room for further improvement in domestic demand in downstream PTA under the stimulus of stable growth policies, but further improvement in export orders remains to be verified over time. It is expected that PTA terminal demand will see a repair-style growth, repair The speed will depend on the recovery of confidence, but in general, the bottom of its downstream consumption has appeared.” Ren Junchi said that in the future, PTA will show a bottoming market. With the restoration of market confidence, PTA will perform better in the “Golden Nine and Silver Ten” market. It may become a “blockbuster” again.
In Zhou Ao’s view, under the circumstances of weak costs and weak supply and demand, there is a high probability that PTA prices will remain weak in the short term. In addition, although there are expectations for the “Golden Nine and Silver Ten” peak seasons in the later period, the current market generally believes that the improvement in PTA demand is limited and needs to be continuously tracked. Whether PTA prices can rebound in the later period also requires attention to the stabilization of upstream raw material prices.
The market bottomed out on Friday night and rebounded, has the downward trend of cotton prices changed?
Last week, cotton futures also led the commodity market in decline, with a weekly decline of 13.67%. Since May, cotton futures prices have also continued to fall. As of the close of trading last Friday night, the main cotton contract closed at 15,095 yuan/ton, a cumulative decline of approximately 31.5% from the high of 22,035 yuan/ton in early May.
Why have cotton futures kept falling since May? CITIC Futures cotton analyst Wu Jingwen told reporters that it is mainly affected by two factors: worsening macro expectations and weak cotton fundamentals.
Specifically, from the macro perspective, as U.S. inflation continues to rise and the Federal Reserve accelerates its tightening of monetary policy, the pressure on the U.S. economic growth to slow down has intensified, causing the overall valuation of commodities to be squeezed. Among them, the prices of crude oil, non-ferrous metals and other commodities have Since June, they have turned downward. In the agricultural product sector, US cotton has fallen back from a high level in May due to the digestion of early bullish factors. In June, due to macroeconomic negative factors, it followed the bulk trading trend.�� went down together. Under this circumstance, Zheng cotton, which had been strongly supported by the external market, also experienced a sharp decline with the rapid decline of US cotton.
“From a fundamental point of view, the current supply of cotton is strong and demand is weak. In terms of supply, as of the end of June, the national cotton commercial inventory was 3.72 million tons, an increase of 700,000 tons year-on-year. The sales progress is slow, resulting in high upstream stocks, and we are facing a shortage before the end of August. Loan pressure has put cotton prices under pressure. At the same time, the downstream demand for cotton is weak, and it is currently in the off-season. Textile mills have poor orders, and the operating rate continues to decline month-on-month. Finished product inventories are at historically high levels and continue to accumulate. Textile mills are facing destocking pressure, superimposed Cotton prices continue to fall due to negative macroeconomic conditions and show no signs of stabilizing, further suppressing downstream purchasing demand,” Wu Jingwen said.
Talking about the reasons for the continued weak demand for cotton, Bloomberg, a senior researcher at Founder Mid-term, told reporters that the demand for cotton was not strong in the peak season from March to April this year, mainly because the price of cotton purchased last year has been at a high level, so the downstream has no demand for high-priced cotton. Too much purchasing interest. In addition, insufficient downstream orders also resulted in lack of motivation to purchase.
In addition, from a policy perspective, Wu Jingwen also said that although the cotton purchase and storage policy was implemented last week, the purchase and reserve volume of 300,000-500,000 tons and the circuit breaker mechanism of 18,600 yuan/ton have limited support for cotton prices. In general, as the profits are exhausted, the trend of cotton prices is weakening and it is difficult to stop it.
Until last Friday night trading, after nearly a month of continuous decline, Zheng Cotton’s main contract saw a sharp rise. The main contract rose 7.74%, ranking first in commodity futures, and the far-month contract rose by the limit across the board. On the external market, U.S. cotton reached its daily limit.
Regarding the strong rebound in cotton prices last Friday night, Wu Jingwen told reporters that the main contract of Zheng cotton dropped from a high of more than 20,000 yuan/ton to as low as 13,560 yuan/ton, a drop of nearly 7,000 yuan/ton, which has fallen to the historical price average. Below, there is a possibility of oversold. In addition, there is market news that a bank has extended loan repayment for three years. If so, it will effectively ease the loan repayment pressure of ginners and boost market confidence. The sharp rebound of Zheng Cotton in last Friday night’s trading may be feedback on this news, and The stabilization and rebound of most commodities in the night session was also one of the reasons for the rise in cotton prices.
Bloomberg also said that as the overall macro sentiment improved last Friday night, commodities generally rebounded, with US cotton recording its daily limit, and Zheng cotton also rising. In addition, after experiencing a sharp decline in the early stage, cotton hit a low of 13,560 yuan/ton in intraday trading last Friday, which has been a huge profit for downstream textile companies. Textile companies have enough motivation to buy goods, thus This led to a rebound in cotton futures prices.
From the current point of view, Wu Jingwen believes that cotton prices may have reached a phased bottom. As sentiment recovers, there is a demand for short-term cotton prices to rebound from oversold conditions. However, under the pattern of increasing global cotton supply and decreasing demand in the new year, it is difficult for the center of gravity of domestic and foreign cotton prices to rise significantly, and the trend of weakening prices may be difficult to change. According to UDSA data, global cotton production is expected to increase by 840,000 tons in 2022/2023. Due to the slowdown in economic growth, there will be greater room for downward adjustments in consumption. Ending stocks are expected to rebound from low levels, so cotton prices are driven downward. From a domestic perspective, cotton production is currently increasing, and consumption is shrinking due to Southeast Asia’s squeeze on export share and chemical fiber substitution. The problem of weak orders and high inventory of textile mills is difficult to solve in the short term. In the future, if textile mill orders pick up or cotton passively increases inventory, it will turn to active inventory removal. Inventory may have a phased boost to prices.
Bloomberg believes that orders from textile companies in the future are still the main factor that determines the mid- to long-term trend of cotton. From the perspective of the international environment, the European and American economies may continue to deteriorate in the second half of the year, and cotton consumption demand will still be insufficient. Therefore, the overall oversupply pattern of cotton is difficult to change, and the downward trend may continue.
Shenwan Futures Research Institute said that the current sales and repayment pressures on upstream cotton ginneries are increasing, and downstream demand continues to be weak. In the short term, there is a need for Zheng cotton to return to a reasonable range after continuous sharp declines. However, the current market sentiment has not yet stabilized. Until the external macro environment improves, we are still cautious about the trend of cotton prices.
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