Last week (December 6-10), the domestic Zheng cotton shock range continued to narrow, with the main contract of CF2205 continuing to fluctuate around 19,500 yuan/ton. There are frequent good news in the domestic market, but the market reaction is relatively calm and there is no sharp rise or fall. The relationship between the high cost of cotton and low demand has led to competition among all parties in the upstream and downstream industry chains.
On December 9, the central bank decided to lower the deposit reserve ratio of financial institutions by 0.5 percentage points. This RRR cut is a comprehensive RRR cut and will release approximately 1.2 trillion yuan in long-term funds. The purpose is to strengthen cross-cyclical adjustments and optimize the capital structure of financial institutions. , improve financial service capabilities and better support the real economy.
That week, the U.S. USDA report also released a global production demand forecast for December. Global cotton ending stocks in 2021/22 will decrease by 1.2 million bales from the previous month. This is due to a decrease in opening stocks and production, while consumption has increased slightly. This month, global cotton production in 2021/22 was reduced by 200,000 bales month-on-month. Overall, the report was neutral, which provided some support for temporarily weak cotton prices.
On the premise that the supply side is stable, the performance of the downstream consumer side is not ideal, which is the reason for the entangled market trend. On the one hand, there is good news about the central bank’s reserve requirement ratio reduction and the decline in global cotton inventories. On the other hand, downstream consumption is weak, product inventory is obvious, and cotton sales are temporarily hindered. In particular, the United States’s renewed boycott of Xinjiang cotton has certain negative effects on the market. Under the interweaving of long and short information, although Zheng Cotton has temporarily stopped the downward trend, it also faces greater difficulties in rising sharply. After all, it is difficult for cotton prices to perform well without significant improvement in demand.
In the short term, the logic of the cotton price game will still revolve around the contradiction between high costs and low consumption. For ginning companies, cost-side support will still have a certain role for the time being. After all, loss-making sales of cotton processed at high prices are not very likely. Realistically, companies also have certain strength to continue waiting for the market to pick up. For textile companies, purchasing Xinjiang cotton yarn at high prices means no profit or even loss. Under such realistic conditions, companies basically purchase as they go and do not dare to keep a large amount of raw material inventory. In addition, their own products are in the stage of accumulation. , which has put great pressure on business operations. Therefore, purchasing willingness and enthusiasm are low, and the price game between the two parties will continue. It will also be reflected in the trend of cotton prices, which may continue to fluctuate in a range in the near future.
</p
