Currently, domestic cotton prices are hovering at low levels. Before the high finished product inventory is consumed to a certain extent, there is no strong demand for raw material replenishment from the downstream, and the domestic cotton market still lacks substantial profits. Since May this year, the main contract of Zheng cotton has oscillated and weakened. Affected by the negative macroeconomic situation and weak fundamentals, the main cotton contract has fallen from above 21,000 yuan/ton to around 14,000 yuan/ton. Currently, the main force of the Zheng cotton market is moving from the 2209 contract. Position to 2301 contract. After Zheng Cotton fell back from the high level, it has not rebounded in a decent way. It is mainly restricted by the downstream market. It is common for textile companies to reduce and suspend production. Although spinning is slightly profitable at the current cotton price, it is priceless and marketless; yarn trade Merchants have a large amount of cotton yarn in their hands, and shipments are very slow. The lack of downstream orders limits cotton consumption. In the short term, Zheng cotton will rebound following the US cotton. The negative impact of the early negative impact on Zheng cotton is nearing its end. Zheng cotton is expected to oscillate and bottom out, and bullish factors will once again dominate the market.
Zheng cotton closed near the 14800 line
On July 27, Zheng Cotton’s main contract closed at 14,845 yuan/ton, a decrease of 1.1%. The atmosphere in the cotton market at home and abroad has improved for a time, but the uncertainty of demand prospects and economic growth is still worrying, and market sentiment has been volatile. Textile companies are more willing to purchase cotton raw materials than before, but because new orders are still scarce, purchasing volumes appear cautious.
Overnight ICE cotton futures once soared 3.8% to a two-week high. The rise in U.S. cotton was mainly affected by the growth rate of U.S. cotton. The U.S. Department of Agriculture’s weekly crop growth report showed that as of the week of July 24, 2022, the U.S. cotton growth rate was 34%, compared with 38% the previous week and 60% in the same period last year. ICE’s most actively traded December cotton contract rose 3.42 cents, or 3.76%, to a settlement price of 94.48 cents per pound. The intraday trading range was 90.3 to 94.9 cents.
The Federal Reserve will continue to raise interest rates in July, but expectations of rate hikes have already been priced in by the market. The market expects that the Fed will continue to loosen money and maintain its balance sheet with a high probability. The negative impact of macroeconomics on commodity prices is expected to gradually weaken or even subside. The U.S. dollar index is expected to remain strong before the Federal Reserve raises interest rates, such as a 75 basis point increase. As the market expects, a 100 basis point interest rate increase will affect the entire commodity market. Although the high-quality rate of U.S. cotton supports cotton prices in the short term, the rapid rebound of the U.S. dollar index will also suppress cotton prices. In the short term, U.S. cotton has rebounded from a low of 82.54 cents. At present, it is still in the bottoming stage of shock. U.S. cotton continues to be affected by the combined impact of dry weather in growing areas and the rebound of the U.S. dollar.
Recent cotton main contract market trends
Northern Xinjiang cotton ginning companies will be cautious in acquisitions
Kuitun is an area in northern Xinjiang where seed cotton scales were opened earlier and prices were higher. In previous years, in order to receive more seed cotton resources, some companies would raise prices to grab the harvest. The Seventh Division of Kuitun said that the cotton planting area this year has dropped slightly compared with last year, and the planting area of winter wheat and corn has mainly increased. Although the vegetation area has decreased, cotton is growing well this year, and a bumper yield is expected. The yield per unit area is expected to be higher than last year. Therefore, the overall cotton output will not decline in overall accounting. At present, the cotton upstream industry is suffering serious losses. The specific opening price of this year will be determined with reference to the market price at that time. It is not easy to predict the opening price now. But what is certain is that the purchase price of seed cotton this year will be lower than the same period last year.
A local cotton ginning company said that after learning from last year’s experience, it is expected that the rush to harvest new flowers will not be repeated this year. When cotton processing companies make acquisitions, they will definitely reserve profit margins for arbitrage. It will not be like last year. Similarly, when the spot price is at a premium to the futures price, you still take the risk to grab the profit. As for whether cotton farmers will have difficulty selling cotton this year, local cotton company personnel said they cannot rule out this possibility. The details will depend on the purchase situation of new flowers when they come on the market.
Cotton reserve rotation policy may change
In terms of cotton reserves, although the country has begun to purchase and reserve, the total amount is only 300,000-500,000 tons, and the bidding mechanism is downward bidding. It is difficult to solve the sales problem of a large number of high-priced lint cotton in the market. Upstream ginning companies are still faced with selling. Due to the cotton shortage problem, commercial inventories are still at high levels. On July 27, 6,000 tons of cotton from the central reserve entered the market, and 2,000 tons were actually sold, with a transaction rate of 33%. Today’s average transaction price is 15,891 yuan/ton, an increase of 19 yuan/ton from the previous day.
There are market rumors that the State Reserve will increase the amount of cotton reserves. As cotton prices stabilized and rebounded, the number of reserved cotton transactions decreased, and some traders were reluctant to sell. However, downstream still showed a wait-and-see sentiment, and actual spot transactions were limited.
Downstream orders are still scarce
The operating rate of spinning equipment is around 80%
Downstream is still in the off-season, and orders are seriously lower than expected, making downstream extremely cautious in purchasing cotton. Cotton textile companies in some areas have been shut down on a large scale.
According to pure cotton yarn cluster enterprises, the current operating rate of spinning equipment is about 80%, the order volume is very small, generally small orders, and the sales progress is slow. According to the current cotton purchase price and yarn sales price, the products are slightly profitable, but most companies are in the stage of digesting high-priced inventory of raw materials in the early stage and are still operating at a loss. It is expected that companies will continue to be under pressure in the later period.��
According to blended yarn cluster enterprises, affected by unfavorable factors such as repeated epidemics and rising production costs, the operating pressure of enterprises is still high. Recently, problems such as raw material price fluctuations, high transportation costs, and weak market demand have become more prominent, resulting in high product inventories, shrinking profits, and expanding losses for companies. It is expected that the status quo may be maintained for a long period of time.
After the sharp rise and fall, as cotton prices gradually stabilized, the panic of textile mills was partially alleviated, but it mostly reflected that downstream orders were still very poor, so they did not dare to replenish their stocks and were not very optimistic about the future. Due to the recent rush of some traders to sell goods, the price competition with textile mills has become serious. At the same time, some yarn mills have used cheaper cotton costs, and the yarn quotations have been greatly reduced, resulting in confusion in the cotton yarn market quotations. Some spinning mills still have a lot of high-priced cotton and are still losing money in spinning. Generally speaking, it is currently in the off-season of textiles, and the overall operating rate is still at a low level. At present, the price of carded yarn 40 in the market is 26,000-26,500 yuan/ton, the price of compact yarn 32 is 29,000-30,000 yuan/ton, and the price of compact yarn 40 is 30,000-31,000 yuan/ton.
Overall, market orders remain scarce. The number of textile companies and traders who have taken holidays has increased due to reduced production shutdowns and holidays. The inventories of textile companies have been under great pressure, and the inventory of finished products has continued to hit new highs. The overall trading volume in the cotton gray fabric market is light, and the prices are stable and weak. Now the prices are mostly maintained after the decline, and there are discounts for large quantities. The current mentality of weaving mills is relatively gloomy. Most of them are optimistic about the market weakness in August, but there are also a few weaving mills who believe that there will be an improvement in August. At present, the operating rate continues to decline, mainly due to the low enthusiasm of weaving mills for production.
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