On December 6, ICE cotton futures rebounded sharply, with the main contract instantly rising to 107 cents/pound, and the sentiment of bulls and funds recovered. As for the reason why ICE bottomed out for two consecutive trading days, the industry generally believes that Saudi Arabia’s increase in oil prices and the easing of epidemic concerns have boosted confidence.
On Monday, U.S. crude oil rose nearly 6%, returning to the $70/barrel level. Fauci, an American infectious disease expert, said that the real risk of Omicron may be lower than Delta, and that the booster shot can provide a “considerable degree” of protection. Recently, the International Monetary Fund believes that the European Central Bank should maintain a highly accommodative policy stance. On December 6, the People’s Bank of China announced that it would lower the deposit reserve ratio of financial institutions by 0.5 percentage points from December 15, 2021. In addition, the recent intensification of drought in the western and southwestern cotton regions of the United States may affect farmers’ cotton planting plans in 2022, which will contribute to the rebound of ICE.
So what impact will the central bank of China’s RRR cut have on ICE’s market? Industry opinions can be summarized into the following three points:
First of all, it reduces the financing costs of small, medium and micro enterprises such as cotton textile and clothing, alleviates the operating pressure under the premise of the “scissors difference” between PPI and CPI, and is conducive to the linking and ordering of cotton textile industry, which is helpful for the 2021/22 cotton season. Consumption has grown steadily without slowing down, and contracted purchases of U.S. cotton, Brazilian cotton, etc. have remained strong.
Secondly, lowering the RRR is conducive to the depreciation of the RMB exchange rate, hedging against the continued appreciation of the exchange rate since the second half of 2021, and is conducive to the export of Chinese cotton textiles, clothing and other products to Europe, the United States, Japan and South Korea, thereby stimulating domestic cotton consumption demand and increasing foreign cotton imports. Create a profit.
Thirdly, the confidence of cotton textile companies is expected to be fully restored, and concerns about monetary policy and liquidity in 2022 have dropped significantly. Compared with the RRR cut in July, this RRR cut is a substantial loosening of incremental base money. As the country releases clear policy signals and a new round of stable economic growth and job creation begins, all parties are full of expectations for foreign cotton imports and cotton consumption in 2022.
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