Last week, the price of Zheng cotton futures rose rapidly after standing firm at 80 cents in the external market, and stood above the 17,000 yuan/ton mark for several consecutive days. However, today (17th) it fell back sharply, giving investors chasing higher prices a heavy blow. hit.
In the July report of the United States Department of Agriculture, global cotton production was slightly raised, but consumption was lowered significantly. Supply once again exceeded consumption. There is indeed no shortage of cotton in the market. At present, domestic cotton downstream spinning losses are expanding, and the gray cloth link has meager profits. If you look at cotton prices from the perspective of “demand determines price”, you will completely misread the market. If we analyze cotton prices from the perspective of “supply determines price”, it is difficult to explain the sharp decline since May last year. Therefore, analyzing the supply and demand relationship from multiple angles and dimensions at different times will help analyze future price trends.
Global consumption rebounds and prices gradually rise
Using the consumption data in the USDA monthly supply and demand balance sheet as a reference, global cotton consumption began to be reduced in April 2022. When the report was released, the ICE cotton price was around 133 cents, but the international cotton price ignored it and continued to rise. , when the demand data for May was lowered again, the corresponding price of ICE cotton had soared to 150 cents. At this stage, the price of Zheng cotton hit 22,000 yuan/ton at about 21,000 yuan/ton in April and then fell back to 21,300 yuan/ton. The increase was significantly smaller than the external market. It seems that it has realized the pressure of weakening demand.
Subsequently, when the USDA continued to reduce global cotton consumption until April 2023, ICE cotton prices remained below 84 cents in April, but the low in November 2022 has not been refreshed. Weaker demand has indeed weighed on international cotton prices. On the other hand, domestic cotton prices have fluctuated and risen since bottoming out in November last year, ahead of the time period when USDA adjusts consumption. When the USDA raised cotton consumption in May, the domestic price was already close to 16,000 yuan/ton. After the July data was released, cotton prices stabilized at 17,000 yuan/ton.
The probability of consumption being reduced later is less
The USDA has lowered cotton consumption. The author believes that it may be based on two points: First, the price of cotton is high, and high-priced cotton will inevitably suppress demand. In April and May last year, ICE cotton prices rose to 150 cents, and domestic cotton prices were as high as 21,000 yuan/ton. Cotton at such a high price will inevitably be squeezed by demand for chemical fiber. Second, the macro environment has deteriorated. Since March, the United States Some European countries have also raised interest rates to cope with inflation. As assets shrink, demand will decrease accordingly.
Looking at the current situation, although the domestic cotton price is above 17,000 yuan/ton, a sharp increase of more than 40% from last year’s 12,000 yuan/ton, ICE cotton is around 83 cents, which is obviously low; July data shows that the U.S. CPI Returning to the 3 era, the market expects the United States to raise interest rates at most twice this year, with a total rate increase of 0.5%, and asset contraction is entering the final stage. Against this background, there is little room for the USDA to further lower global cotton consumption, and it is unlikely to return to April levels.
Therefore, by analyzing past global cotton demand data, we believe that cotton consumption will steadily increase in the future. If we look at cotton from the perspective of “demand determines price”, perhaps the price will rise steadily.
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