In recent days, cotton has been the leading performer. While other commodities have been pulling back, it has gone against the norm and made a strong rebound. Under the current contradictory situation of weak fundamentals and strong market conditions, what will be the trend of cotton prices? The traditional peak season of “Golden Nine and Silver Ten” is coming, and the market expects that consumption may see a slight recovery, which will also have a certain degree of price support for yarn in the short term. The downstream sector has also picked up, and the operating rate of textile mills in some areas has increased to more than 60%.
The cotton spinning industry is not easy, and the epidemic affects consumption
This year is really not easy for the cotton spinning industry. First, the epidemic broke out in Shanghai from April to May, which had a great impact on the national economy. Consumption was squeezed, and the operating rate of many cotton spinning companies fell to historical lows. In order to avoid losses, some companies even started to suspend production and take holidays. The peak production and marketing season in the first half of the year was lost due to the epidemic, and cotton consumption lagged significantly behind the same period last year.
In addition, as epidemics continue to emerge in other parts of the country and prevention and control measures continue to escalate, cotton consumption continues to be under pressure.
At the end of June, the United States officially introduced a bill banning Xinjiang cotton, which resulted in a significant reduction in foreign trade orders in the U.S. and European markets, further suppressing the demand for Xinjiang cotton. The above comprehensive factors have had a great impact on Xinjiang cotton prices, which fell to the lowest point during the year. However, with the positive impact of the US cotton report, Zheng Cotton began to rebound last week.
Zheng cotton continues to rebound, with a strong short-term run
ICE cotton futures opened higher and fluctuated overnight on Tuesday, and closed higher than the previous day. On August 17, Zheng cotton opened higher and moved lower, then fell back in late trading. The closing price of the main contract was 15,530 yuan/ton, an increase of 0.29%.
The overall market price of Zheng cotton in August has gone up and down, but this time the performance is obviously very strong, rebounding by about 1800 points in just one week, which is closely related to US cotton. After USDA released its August report last Friday, U.S. cotton ICE was directly closed to the daily limit. The market expects that the rise of U.S. cotton in August may continue.
With the support of US cotton, Zheng Cotton may not be bearish in August. Although the fundamentals of the cotton spinning industry are now very poor, the risk factors of US cotton must be taken into consideration. On August 15, the central bank lowered the winning bid rates for medium-term lending facility (MLF) operations and open market reverse repurchase operations by 10 basis points respectively. The reduction in policy interest rates also had a certain stimulating effect on the financial market. In the medium term, domestic cotton spinning industry consumption is weak, especially when domestic cotton production is expected to increase and consumption decrease in the new year, a short-term rebound may usher in a greater decline.
The profits of textile companies have dropped sharply, and cotton yarn has cautiously increased.
Although the CF2301 contract of Zheng cotton increased by more than 15.5% from July 15 to August 17, the cotton spot basis quotation and “fixed price” increase were significantly weaker than that of Zheng cotton. For example, the “Double 28” quotation of Xinjiang’s internal warehouse was only The price rose by about 1,200-1,500 yuan/ton, while the increase in cotton yarn quotations was even weaker, with only some companies tentatively raising their prices by 300-500 yuan/ton.
Some textile companies judge that domestic cotton supply clearly exceeds demand, and the rebound of Zheng cotton is not sustainable. There is a high probability that the price will fall to 15,000 yuan/ton and below in the near future. Caution must be exercised when raising quotations for cotton yarn, gray fabrics, etc., otherwise it is likely to ” Shooting yourself in the foot.”
As the main contract of Zheng Cotton enters the 15,500-16,000 yuan/ton range, the “paper” profits of cotton spinning mills have been swallowed up. Recently, due to the combined effects of persistent hot weather in central and eastern China and the escalation of epidemic prevention and control in some provinces and cities, the proportion of production reductions by small and medium-sized yarn mills and weaving companies in some areas is still increasing (some textile companies have been on holiday for more than half a month).
A textile company in Jiangsu said that since July and August, cotton yarn sales have not only required one-by-one negotiation, but almost all export orders require manufacturers to provide proof of non-Xinjiang cotton. In addition, orders are mostly “short orders and small orders”, and textile companies have accepted The willingness to place new orders is also not strong.
Yarn shipments have accelerated, and it is difficult for prices to rise
Cotton prices rose sharply in the second week of this month, but as the downstream recovery is still limited, it is obviously difficult for yarn prices to follow the increase. Only on August 14 and 15 did the actual transaction prices of some varieties increase by 100-300 yuan/ton. .
Since August, the speed of yarn delivery has accelerated, the finished product inventory of yarn mills has decreased, and the inventory pressure has been alleviated to a certain extent. The high temperature continues in the south, and the high temperature holiday for some enterprises in Jiangsu and Zhejiang is still extended, and the operating rate has not improved significantly. However, the startup rate in Shandong and other northern regions has rebounded more significantly. Some clusters were generally powered on at 30 to 40% before, but have now returned to around 80%. From the perspective of goods shipped, low-count carded yarn and open-end spinning are still better, while combed high-count yarn performs weaker. Due to the large fluctuations in cotton prices, textile companies are still cautious in replenishing their inventories. They still focus on buying as they are used and do not dare to replenish their inventories in large quantities.
The traditional peak season of “Golden September and Silver October” is about to come, and the market expects that consumption may recover slightly. Therefore, there is a slight increase in the demand for stocking, which will also have a certain degree of price support in the short term. But once the “boom” appears again,The “not prosperous” situation will have another impact on the upstream and downstream.
Weaving factories are restarting and inventory pressure is falling
Due to the surge in U.S. cotton during the Spring Festival, the market in Zhangcha, Guangdong had a good start this year, with an operating rate of 40-50%. However, it was later discovered that the market was not as good as expected and there were no orders to be received. The weaving operating rate quickly dropped to 30%, and then remained unchanged. Maintained at a historical low of 20% to 30%, while gray fabric inventory is high, up to 2-3 months.
In the short term, with the support of the surge in US cotton and the impending industrial consumption peak season, cotton prices are gradually recovering, downstream production and sales rates are steadily increasing, and market confidence has begun to rebound. Foshan’s operating rate has continued to rise since August. According to Foshan cotton spinning people, the operating rate of local weaving factories has increased to more than 60%, reaching the level after the beginning of the new year. However, the early operating rate was only 20-30%, and gray fabric inventory It has also declined, and is currently between 40-50 days.
The cotton spinning industry is about to usher in the peak production and sales season of “Golden Nine and Silver Ten”
The spot price of cotton rebounded slightly this week, and the decline in cotton yarn prices on the market has slowed down. However, prices are still being reduced to remove inventory. The profit margins of textile companies have become differentiated. Some companies have already made certain profits from sales after destocking finished products. , but some are still losing money to remove inventory. With the marginal cost benefits brought about by the increase in raw material prices and the gradual arrival of the traditional peak season, some cotton mills are willing to increase prices, but they have to give up if the downstream does not accept it. Compared with last year, due to the loss of overseas orders and the impact of the U.S. Xinjiang cotton ban, my country’s external demand is facing severe challenges this year. With external demand severely shrinking, my country’s demand-side consumption is under great pressure to rely solely on domestic demand. Entering mid-August, the cotton spinning industry is about to usher in the peak production and sales season of the “Golden Nine and Silver Ten”. Whether consumption, which has been suppressed before, can be significantly restored by taking advantage of this opportunity will determine the quality of the peak season.
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