Recently, the central bank officially announced that it will lower the deposit reserve ratio of financial institutions by 0.5 percentage points on December 15, 2021. The sluggish futures market is booming again, commodity prices have surged, and market investors seem to have regained their confidence.
In response to this RRR cut, experts believe that this RRR cut is not a shift in monetary policy to easing, but a better use of structural monetary policy tools on the premise of ensuring reasonable and sufficient liquidity. Therefore, lowering the reserve requirement cannot change the price trend of commodities. What determines the price trend is the internal supply and demand logic of commodities. The rise in cotton prices last week was mainly due to the market gradually digesting the impact of the Omicron virus, coupled with the sharp rebound in crude oil, indicating that the market’s early reaction was overreaction. As people gain a deeper understanding of the impact of the virus, the market gradually returns to rationality, and the main contract price of Zheng Cotton has regained its footing at 19,500 yuan/ton.
In comparison, Zheng Mian’s growth rate is still lower than that of the external market due to the stimulation of favorable macroeconomic policies. Judging from the current market performance, the RRR cut policy has limited stimulus to the cotton market. In fact, the news of this RRR cut came out on December 3, so its effect has been digested in advance. And on November 22, the General Office of the State Council issued a notice on further increasing the relief and assistance for small and medium-sized enterprises. It pointed out that the current situation of operating difficulties of enterprises, including small and micro enterprises, has been understood and multi-faceted assistance has been requested. “Use a variety of financial policy tools flexibly and accurately”, and also require “helping enterprises cope with pressures such as rising raw material prices, rising logistics and labor costs”, and in this RRR cut, it is mentioned that “guiding financial institutions to actively use the RRR cut funds to increase “Strength of support for the real economy, especially small, medium and micro enterprises”, this is the coherence effect on the implementation of relevant policies.
The continuous rebound of Zheng cotton does not mean that cotton still maintains a strong pattern. Under the premise of stable supply side, cotton consumption side is under greater pressure. At present, the downstream market is not optimistic. Not only are there few orders, but there is also great inventory pressure, and the market is relatively pessimistic. The author believes that the current production and marketing situation in the downstream market is indeed not good. The prices of cotton and cotton yarn have dropped to varying degrees. The trend of Zheng Cotton’s market is basically consistent with the fundamentals. The central bank’s RRR cut also reflects that the company is currently in some difficulties. If cotton prices want to continue to rise sharply, downstream consumers must cooperate, otherwise empty talk about rising prices is like a castle in the air and cannot be sustained for long.
Analysts believe that the price difference between domestic and foreign cotton is too large, the consumption power of downstream textiles is insufficient, and the industry transmission is poor. These are the current contradictions. The RRR cut is conducive to the financing of small and medium-sized enterprises, but it is difficult to resolve conflicts of interest between upstream and downstream in a targeted manner. Therefore, in the short term, the RRR cut will have limited benefit to the cotton market. Subsequent downstream textile and apparel consumption and cotton spot circulation are still the key to affecting the direction of the cotton market. In the case of large inventories and few orders, it is difficult to cover the cost of high cotton prices alone, because costs sometimes do not work. If they all work, there will be no business operating at a loss. As the year is approaching and market funds are tight, the CF2201 contract has gradually entered delivery. Short-term cotton will continue to fluctuate slightly and does not meet the conditions for major adjustments.
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