After May Day, Zheng Cotton experienced a sharp rebound, with the main CF2109 contract breaking through the 16,100 yuan/ton mark (the intraday high on May 7 was 16,170 yuan/ton, 640 points higher than the April low), showing great potential. The resistance level is 16,500 yuan/ton. However, Zheng Cotton suddenly dived back in the afternoon of the 7th. In late trading, the bulls failed to hold the support level of 16,000 yuan/ton. The long and short sides started a game again near 16,000 yuan/ton.
Some institutions and cotton-related companies believe that the main force of Zheng cotton this week exceeded 16,100 yuan/ton mainly due to the recent overall rise in internal and external commodity futures. Of course, the number of additional issuances of China’s sliding quasi-tariff cotton import quotas in 2021 is lower than market expectations. During the May Day period, the cotton yarn market showed “increased shipments and rising prices” and the full-capacity production of cotton spinning mills also played a certain role in boosting the increase.
The author believes that judging from the current market situation and market sentiment, it is difficult for Zheng Cotton to test 16,500 yuan/ton in the short-term. In the “bottom” state, it is basically easy to rise but difficult to fall, so you need to be cautious when you are significantly bearish. At present, the obstacles that restrict Zheng cotton from accelerating its rebound and testing 16,500 yuan/ton are as follows:
First of all, the weather in Xinjiang cotton areas has improved and the temperature has risen, and farmers have accelerated sowing and planting. Plant or replay progress, and the theme of bullish capital speculation is weakened. The industry said that areas that have not yet completed the spring sowing task should take advantage of the recent sunny weather to speed up the sowing progress. The cotton that has emerged should be cleaned of dust in time. After the rain, the soil should be plowed to loosen the soil and break the soil compaction. The early “late spring cold” weather will have a negative impact on cotton planting in Xinjiang. The impact is basically negligible.
Secondly, the sustainability and profit status of orders received by cotton textile and clothing companies may be lower than expected. The situation is optimistic, and risks are also accumulating. On the one hand, the orders returning from India, Bangladesh, Pakistan and other countries are gradually increasing, but they are mainly “small orders, short orders” and generally have the characteristics of “short delivery time and low profit” (mainly home textiles, bedding, etc.) (mainly supplies, towels, etc.), Chinese companies are relatively cautious in accepting and arranging orders; on the other hand, since March-April, cotton yarn stocks have been in a state of continuous recovery, and some yarn mills have failed due to the high cost of cotton raw materials and insufficient bargaining power. Trapped temporarily.
Finally, the issuance of an additional 700,000 tons of cotton import quotas with sliding quasi-tariffs eased the demand of some cotton textile companies to import foreign cotton and weakened the rebound of Zheng cotton. Judging from the survey, the issuance of additional import quotas has given cotton spinning companies the opportunity to import independently, reduce yarn costs, and improve export competitiveness. In addition, there has been a “blowout” of cotton yarn imports since 2021, which not only increases the substitution effect of domestic cotton yarn, but also has a negative impact on domestically produced cotton yarn. Cotton consumption also took its toll. </p
