Since late July, Zheng cotton futures prices have corrected somewhat, but the upward trend has not changed. Especially after the two major policies of selling reserves and increasing issuance of sliding tax quotas were implemented, cotton prices did not fall but rose.
Policy “boots” are implemented
Previously, the market has already expected that the reserve sales and the issuance of sliding tax quotas will be increased in the second half of this year. The disposal of reserves and the issuance of sliding tax quotas will help increase supply, alleviate the current inventory shortage problem, and exert a certain suppression on prices. . On July 18, the 2023 Central Reserve Cotton Sales Announcement was released, clarifying the calculation formula for the sales floor price. Participants are limited to textile cotton companies, but the quantity is not specified. After the news was announced, the market plunged that day, with the Zheng Cotton 2401 contract hitting a low of 16,835 yuan/ton, but showing strong support at 16,800 yuan/ton and soon stabilized.
On July 21, the National Development and Reform Commission issued an announcement that it would issue a sliding tax quota of 750,000 tons of cotton imports in 2023. Very similar to the night trading performance on July 18, the night trading on July 21 dived, with the Zheng cotton 2401 contract hitting a minimum of 16,930 yuan/ton, and showing strong support at 16,900 yuan/ton.
On July 27, the details of the storage sale were released, clarifying that it would start on July 31, and the first-day listing volume would be 10,000 tons, which was lower than the previous market rumors of 10,000-20,000 tons in a single day. If the stockpiling continues until the end of September, the cumulative supply in two months will be approximately 400,000 tons and no more than 500,000 tons.
The implementation of the policy will have its own impact on the unilateral market price and the monthly price difference. On the one hand, selling reserves has solved the problem of tight inventories in recent months, and the momentum for the sharp rise in the 2309 contract has weakened; on the other hand, selling reserves cannot suppress the unilateral upward trend, and the implementation of the policy can be interpreted to a certain extent as the exhaustion of bad news, and the price of Zheng cotton futures continues Uptrend.
Downstream consumption is still in the off-season
According to tteb’s data, the operating rate of textile mills continued to decline month-on-month and finished product inventory accumulated. As of July 28, the operating rate of pure cotton yarn mills fell by 0.4 percentage points month-on-month to 57.8%, and the operating rate of cotton gray fabric mills dropped by 0.3 percentage points month-on-month to 57.8%. 56.7%; the cotton yarn inventory of textile enterprises increased by 0.5 days month-on-month to 20 days, and the inventory of cotton gray fabrics increased by 0.4 days month-on-month to 31.2 days. From an absolute value point of view, although the operating rate of textile mills has declined seasonally, it is not at a low level. The inventory of finished products is still at or below the historical average for the same period. Only cotton yarn traders have high inventory, but there is a demand for stocking up for the future market. .
As the price of Zheng cotton futures rose instead of falling in the past two weeks, the trading volume of pure cotton yarn gradually increased. The transactions in Nantong market and Guangdong market increased, and the price of cotton yarn also increased to a certain extent. The current inventory of raw materials in weaving mills is still low, with only 6.2 days as of July 28, which is at a historical low for the same period, and there is a need to restock. August is an important node in the transition from the off-peak season to the peak season. If orders improve, downstream stocks are replenished, and cotton yarn inventory can be smoothly transferred downwards, it will be conducive to the strengthening of cotton yarn prices.
Cotton prices are still expected to rise in the second half of the year, and the core driver is the supply side. In the new year, Xinjiang’s cotton output is expected to decrease to less than 5.3 million tons year-on-year. On the one hand, the sown area has declined year-on-year, and on the other hand, the growth situation this year is not as good as last year, and the yield per unit area is expected to decline. The reduction in seed cotton production has further aggravated the problem of overcapacity in ginners. The rush to harvest during the purchasing season may occur again, pushing up the purchasing price of seed cotton and thereby pushing up the futures price of Zheng cotton. At present, the policies are negative, the weather is positive for prices, and there are signs of improvement on the demand side, which strengthens the foundation for stronger prices in the future.
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