In 2021, bulk commodities have made a sharp correction, and cotton prices have also fluctuated widely. The market is intertwined with long and short factors. How the market outlook develops is quite critical. The mainstream view in the market is that in the absence of substantial positive developments, prices are more likely to remain range-bound. What is the reality?
Overseas epidemics have returned with a resurgence, and the market continues to be under pressure
Looking at the development trend of foreign epidemics, it is really a wave Waves arise again and again. Although countries have vigorously promoted the progress of injections after the advent of the vaccine, due to production, distribution, efficacy and other reasons, the number of infections in various countries has increased again recently. With the exception of China, other countries have not achieved an overwhelming victory against the virus. Statistics released by Johns Hopkins University in the United States show that as of April 12, the number of confirmed cases of COVID-19 worldwide has risen to 136,187,887, including 2,938,829 deaths. The number of daily infections in the United States is still in the tens of thousands, with a total of 31,202,818 confirmed cases reported and 562,096 patients dying. The European epidemic situation has generally improved compared with the peak period, but the number of confirmed cases in some countries still remains high. Affected by this, foreign countries have extended blockade and quarantine measures, and the economy will continue to be under high pressure in the short term. The epidemic is still the main contradiction affecting economic recovery. The degree of resolution of this contradiction is directly related to economic recovery and commodity prices.
The global economic rebound faces many uncertainties
On April 6, the International Monetary Fund (IMF) released the latest “World Economic Outlook” forecast that the global economy will grow by 6% in 2021, an increase of 0.5 percentage points compared with January; of which the GDP of developed economies will increase by 5.1% (an increase of 0.8 percentage points). The GDP of emerging market and developing economies will grow by 6.7% (upped by 0.4 percentage points). At present, all countries are increasing vaccine production capacity, and the number of vaccine injections is expected to continue to increase rapidly. On this basis, it is also expected to increase the economic growth rate. Of course, prediction is one thing, reality is another story. The IMF also admitted that although the global economic growth prospects have improved, it still faces huge uncertainties. The future economic trend depends on a series of factors such as whether the vaccine is effective against the new virus strain and whether the epidemic will last longer due to the new virus strain.
Inflation expectations remain and commodity prices are of concern
On April 8, the Central Committee of the Communist Party of China The 50th meeting of the Financial Committee, chaired by Liu He, member of the Political Bureau, Vice Premier of the State Council, and Director of the Financial Committee, emphasized the need to maintain basic price stability, especially paying attention to the trend of commodity prices. Then on April 9, Li Keqiang, member of the Standing Committee of the Political Bureau of the CPC Central Committee and Premier of the State Council, presided over a symposium of experts and entrepreneurs on the economic situation. The meeting emphasized the need to strengthen market regulation of raw materials and other areas to alleviate cost pressures on enterprises. The two high-level meetings mentioned it in succession, indicating that commodity prices are expected to rise this year. There is a view in the market that regulators are worried that rising commodity prices will bring imported inflation, which will trigger a tightening of the central bank’s monetary policy. However, the central bank’s fourth quarter monetary policy implementation report believes that China’s current total supply and demand are basically balanced, and there is no basis for long-term inflation or deflation. The Fed also believes that current inflation is temporary and caused by a low base effect.
The US cotton USDA report is bullish and the market outlook is healthy
According to the 4th report released by the United States Department of Agriculture According to the global production and demand forecast in January, U.S. exports will increase in 2020/21 and ending inventories will decrease. In 2020/21, global beginning stocks and production decreased month-on-month, consumption increased, and ending stocks fell by 1.1 million bales. However, despite positive cotton fundamentals, fund net long positions have declined for several weeks. International cotton professionals said that recent cotton price adjustments are mainly due to factors in the external market and the macro environment. A moderate correction in cotton prices will help cotton maintain its competitiveness. Currently, the December ICE futures contract has started to fluctuate upward from a low of 75.34 cents/pound, and the trend in far months is better than that in recent months. From a long-term perspective, the basic outlook for cotton in the next season will set the tone for cotton price trends. How the actual situation develops will mainly depend on external macro factors and changes in weather conditions.
The domestic cotton market continues to correct, and there are frequent news of long and short markets
Recently, there has been an incident in Zheng cotton. Affected by rumors of quotas and rotations, cotton prices have been under pressure to fall. Of course, the above are just rumors, and the real situation needs to wait for official notification. The third wave of epidemics in Europe and the United States has affected market consumption expectations, but cotton fundamentals are not ugly. Data from the National Cotton Market Monitoring System show that my country’s cotton output in 2020/21 was 5.95 million tons, a year-on-year increase of 107,000 tons, a year-on-year increase of 1.83%; consumption was 7.7758 million tons, a year-on-year increase of 299,100 tons, a year-on-year increase of 4%; the ending inventory was 616.4 million tons, a year-on-year decrease of 64,600 tons, or a year-on-year decrease of 1%; the gap between production and demand was 1.8258 million tons, an increase of 192,100 tons from the previous year. Overall, as the epidemic is gradually brought under control in the future and consumption gradually recovers, the marginal tightening of cotton supply and demand appears. At the same time, in the face of the complex situation of Sino-US relations, the rise in cotton prices requires strong fundamental data.
The operating rate of textile enterprises is relatively high, and production and demand maintain a good trend
The author visited Jiangsu recently Some manufacturers are relatively optimistic from the perspective of production and sales. Some media reported that textile orders have dropped recently, and there has even been a shortage of orders. According to experience, each region and each enterprise’s products and customers are very different, and the sales situation will definitely be different. The so-calledDifferent actions are beneficial. At least judging from the situation of the companies visited by the author, operations are still operating at full capacity, and orders have dropped to varying degrees compared to before the holiday, but they can be maintained at least until the end of April to May. Foreign boycotts of Xinjiang cotton have little impact on downstream textile companies. The epidemic in major textile countries such as India is out of control, which will cause some foreign orders to return to China, which is somewhat similar to the situation last year, which is beneficial to the production of domestic companies. Moreover, spinning profits are now relatively good, which will stimulate companies to increase horsepower production to a certain extent. The two companies interviewed this time said they are expanding production, which is quite different from the news about production reduction and suspension heard in the past. At least from the textile side, orders have supported cotton prices.
The future trend of cotton prices requires the resonance of macro and industrial data. From the current point of view, there are no conditions that support the unilateral trend of rising or falling. Long and short factors have always gone hand in hand. Therefore, it is of limited significance to try to compare long and short factors to determine the trend of cotton prices. Senior market experts believe that in the midst of an economic recovery cycle, although cotton prices are under short-term pressure, in the long term, there is a greater probability of a spiral upward. </p
