In recent days, cotton’s decline has been hard to change, and a large number of orders have been cancelled. The off-season of July has passed, and August may not be much better. In addition to hoping for good market conditions, we can also take it one step at a time and don’t lose too much, which is considered a blessing.
The pattern of loose supply and weak demand remains, with cotton falling nearly 14% in July
The cotton market in July continued the trend in June, with prices continuing to decline. At the end of the month, the market fluctuated and rebounded slightly. On the 29th, the average price of domestic cotton price index 3128B level was 15,816 yuan/ton, a decrease of 2,551 yuan/ton from the end of last month.
At the beginning of the month, domestic and foreign cotton prices fluctuated downwards, lacking fundamental support. The intensifying risk of economic recession and the continued rise of the US dollar made the outlook for cotton demand bleak. Foreign cotton support was insufficient, and domestic spot futures prices followed suit. On the 8th, the announcement of the arrival of reserve cotton was released. This news boosted the market, and lint cotton futures stopped falling and rose that night.
In the middle of the month, USDA’s July data reduced global consumption and increased ending stocks. ICE US cotton prices were under pressure and fell to the limit. Domestic Zheng cotton prices fell simultaneously, and the spot market followed suit. The industry’s off-season atmosphere is highlighted, order performance is poor, some textile companies have restricted production and suspended production, and cotton consumption has decreased.
At the end of the month, domestic cotton prices followed the price of foreign cotton and rose slightly, but the price of foreign cotton increased even more, causing the price difference to widen. Zheng cotton rebounded after a sharp decline. The rise for several consecutive days has brought confidence to the market. The spot market has stabilized. Cotton companies are highly motivated to sell, and downstream textile companies are buying as they use.
From July 13 to July 29, a total of 39,680 tons of cotton from the central reserve were traded, and the average transaction price was 16,011 yuan/ton. Although the official introduction of the purchase and storage policy has boosted the market, the purchase and storage quantity is less than expected, and there are too many restrictions on delivery and storage qualifications and cotton quality. The price is higher than 18,600 yuan/ton and then circuit breaker, which has certain restrictions on the rise of market prices. , insufficient support.
U.S. cotton contract cancellations increase, traders fall into passive position
According to feedback from cotton trading companies in Qingdao, Zhangjiagang and other places, since mid-July, the phenomenon of buyers requesting to cancel the contract, re-sign the purchase contract at market price, or negotiate a “buy-back” contract by the seller has continued to increase, including some cotton textile companies that have cooperated with them all year round. For old customers of factories and middlemen, the contract performance rate has dropped again and again. Foreign businessmen also expressed that buyers from not only China, but also India, Turkey, Vietnam, Indonesia, Pakistan and other countries are willing to implement the 2021/22 US cotton contract. is weakening, the cancellation of early high-priced contracts may become the focus of the recent game between buyers and sellers.
An international cotton merchant said that there were three main reasons for the postponement and cancellation of the US cotton contracts signed in April, May and June: First, ICE cotton futures have plummeted since mid-May, with the main December contract falling from 133.79 cents/ The pound fell to 82.54 cents/pound, and some buyers entered the market at 110-120 cents/pound to buy the bottom (December contract). As a result, the current loss is about 20-30 cents/pound, which is difficult for purchasers to accept and digest; secondly, due to The Federal Reserve continues to aggressively raise interest rates (by 75 basis points in June and July respectively), including the sharp depreciation of RMB, Indian rupee, Vietnamese dong and other currencies against the US dollar, which will “make matters worse” for cotton import costs; third, in the second quarter of 2022 Since then, cotton textiles, cotton products and clothing in China, India, Pakistan and other countries have been stuck in the dilemma of inverted production and sales, weak new orders, and cotton consumption has obviously peaked and fallen. Demand has declined, and some cotton-using companies can only take measures such as delaying performance and canceling contracts. Means to alleviate liquidity pressure.
A medium-sized cotton company in Huangdao believes that if the main short-term ICE cotton futures contract cannot recover 100 cents/pound or 110 cents/pound, it is expected that a certain amount of U.S. cotton purchase contracts will still be canceled or postponed; traders in this process China is very passive and can only keep a close eye on each contract signed in the early stage, communicate with customers quickly, and fulfill the contract as soon as possible; for port bonded cotton, measures such as reducing the basis difference and increasing bargaining space are adopted to stimulate shipments, striving to “grasp both hands. Both hands must be strong.” It is understood that the main contract of ICE cotton futures is in the range of 85-95 cents/pound. There are a few international cotton merchants and large trading companies purchasing bonded cotton resources at the port, mainly US cotton/Brazilian cotton.
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