Since early February, Zheng Cotton has followed ICE cotton futures into the “late spring cold” mode. Each contract has continued to fluctuate and decline. The main force CF2205 has continuously broken down, and the cotton spot basis quotation and fixed price have subsequently fallen. Judging from the survey, in the past week or so, as the “inversion” between the comprehensive cost of cotton in storage and the market sales quotation has expanded, and the “inversion” between the comprehensive cost of cotton in storage and the main contract of Zheng Cotton has exceeded 2,500 yuan/ton, Xinjiang cotton processing enterprises have both Zheng cotton cannot be hedged, and there is no enthusiasm for spot quotation sales. However, as the main force of Zheng cotton falls below 21,000 yuan/ton, 100% hedging or cotton traders (including futures companies) with a higher hedging ratio, cotton traders Flower factories have been very active and have mastered the operation of “closing short orders and selling spot goods”, which not only suppresses the stabilization of cotton spot prices, but also has a huge impact on the confidence of cotton processing companies in raising prices and selling prices.
Judging from feedback from traders, basis price is currently the main method of Xinjiang cotton spot transactions (most cotton companies have not adjusted the basis since last week). Since the cotton price difference in warehouses inside and outside Xinjiang has reached 600-700 yuan/ton, and since February The number of vehicles leaving Xinjiang has increased significantly (the overall freight rate has been reduced), so the recent point-price transactions of machine-picked cotton in Xinjiang’s supervision warehouses of 3128 and above (breaking strength 27CN/TEX and above) are better than those in mainland warehouses.
As the U.S. seizes on China for failing to complete the first-phase agreement, it may launch a new round of economic and trade investigations that will lead to new tariffs and a tightening of the U.S. import ban on Xinjiang-related products. It is a high probability that the Federal Reserve will raise interest rates in March. The conflict between Russia and Ukraine has disturbed global capital markets, etc. As negative concerns intensify, some cotton processing companies and cotton traders have gradually turned negative on the cotton trend in 2021/22, judging that the market’s “late spring cold” will be difficult to change in the short term, and a weak trend of bottoming out has been formed. The forecast of global and Chinese cotton planting area and output in March/April 2022 may become the “last straw” that overwhelms the confidence of Zheng cotton and cotton enterprises. The CF2205 contract consolidation range may not escape the 20,000-21,000 yuan/ton box. Under the premise that the “inversion” between comprehensive costs and main contracts, production and sales is increasing, the pressure on some Xinjiang cotton processing enterprises to repay loans and collect payments in proportion has also continued to increase.
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