Market Pressure Is Increasing. Cotton Prices Are Limited.

At present, the inventory of textile enterprises is abundant, the state stores will soon be on sale, and the new cotton will soon be on the market. Later, domestic cotton supply will be more abundant, while the downstream textile enterprises will increase their enthusiasm for purchasing because of the increased cost pressure.

Zheng cotton CF1101 contract price hit a low of 16100, began in mid July to rebound from low, this is due to the strong rebound in cotton prices outside the drive, on the other hand, many investors believe that the recent news of throwing the store will eventually become clear, Zheng cotton short-term memory is out of the air.

At present, the price of Zheng cotton CF1101 contract is close to the previous high point, and it is only one step away from the 17000 integer pass.

Combined with the current domestic market situation, I believe that Zheng cotton uplink space is limited, the price is difficult to break the 17000 integer pass.

First, the weak or weak spot pattern will continue.

Earlier, as the market rumors about the sale of national reserves came one after another, domestic cotton spot prices stagnated, the cotton enterprises also showed some panic, even at the expense of sales promotion.

As of August 4th, the national cotton price index B (CNCottonB) was 18179 yuan / ton, compared with 18373 of the historical high price dropped nearly 200 yuan / ton, and some cotton area 3 grade cotton quotation has fallen below 18000 yuan / ton.

In the background of the abundant reserves of spinning enterprises, the imminent sale of national reserves and the upcoming listing of new cotton, we believe that this pattern of weak oscillation will continue.

In order to cope with the continuous high cotton prices, many domestic textile enterprises are prepared at the early stage, and the cotton reserves are relatively adequate.

The national cotton market monitoring system "China cotton industry inventory survey report" shows that in early July, the average daily use of cotton in enterprises increased by 16.4% over the nearly 3 years average level. In the early July, the raw material procurement enterprises decreased by two percentage points compared with the beginning of June.

It is also understood that at present, some large textile enterprises are generally in the stock market for 1 to 2 months, and a few large enterprises can use October or even longer.

About the long-standing selling problem of national savings, the market has been basically determined. Judging from the announcement issued by the cotton textile industry association, the purchase target is limited to the textile cotton enterprises, and the maximum purchase quantity is approved according to the principle of purchasing cotton for 1 months at most, and the required reserve cotton is limited to the self use of the enterprise, so it is not allowed to sell.

This has also ensured to a certain extent that national cotton stores can eventually flow into the most urgent need of cotton spinning enterprises, thus preventing the middlemen from speculating on cotton prices.

It is understood that at present there are about 1 million 500 thousand tons of cotton stored in the state. It should be said that the cotton price in the later period still has certain regulation and control capability. Once the throwing storage is implemented, the supply situation of domestic cotton will be improved no matter in terms of quantity or quality, especially the demand for high-grade cotton purchased by some enterprises will be effectively satisfied.

In addition, at present, only 1 months from the new cotton market, the national cotton market monitoring system, according to the survey in June, estimated that the total output of cotton will be 6 million 976 thousand and 700 tons this year, an increase of 3.26% over the previous year.

Although output is still low, the gap is still larger than the demand for more than 10 million tons of cotton per year. However, as new cotton is on the market and inventories continue to increase, the possibility of a significant increase in cotton prices at the beginning of the year is still small.

Although the temperature was low in the spring sowing period, cotton planting was generally postponed. It is not possible to postpone the listing of cotton this year compared with the previous years. However, as the throwing and storing time may last for about two months, the domestic cotton supply in the latter part of the whole year is still relatively abundant.

Two, downstream demand or slowing down

Recently, the price of cotton yarn and grey fabric in China has become more and more noticeable. The progress of product sales has slowed down compared with the previous period.

According to the National Bureau of statistics, the growth rate of textile products in China from 1 to June slowed down 0.45, 0.98 and 4.75 percentage points from 1 to May, indicating that the downstream demand power is weakening.

This is because the domestic textile consumption is in the off-season, and on the other hand, the pressure brought by the continuous rise in cotton prices in the early stage has not been completely digested by the terminal market.

Cotton prices have risen by more than 40% over the past year. Driven by this, domestic cotton yarn prices have risen by more than 40%. The price of grey fabrics in middle reaches has increased by about 20%, while the producer prices of terminal products have risen by only about 2% compared with the same period last year, while their retail prices dropped by 1% over the same period last year.

In addition, due to the increasing demand for labor, the shortage of labor in textile enterprises in the southeast coastal areas is serious, resulting in a significant increase in the cost of employment.

It is understood that the cost of labor in textile enterprises has increased by about 20% over the year since 2009.

The rising cost of production factor has increased the cost pressure of enterprises obviously. Cotton prices have gone up too fast, which has increased the difficulty of raw material procurement and inventory risks of textile enterprises, and the cost pressure is difficult to pmit through the industrial chain to terminal consumption.

In addition, as the pressure of RMB appreciation has increased, the pressure of international competition for domestic textile enterprises has also been increasing. Many unfavorable factors make the textile industry chain face greater pressure to survive, thus increasing the uncertainty of its late operation.

Moreover, from the macro perspective, the economic recovery in Europe and the United States has not been interrupted, but it is still struggling. The domestic economic growth rate is slowing down. In addition, the activities of foreign buyers' replenishment activities are coming to an end. In the second half of this year, the growth rate of domestic and foreign textile sales and cotton demand is likely to slow down.

Three, the US cotton continues to rise is less likely.

Thanks to the continued decline in the US dollar, recent tight supply of international cotton resources and active market demand, the US cotton began to rebound gradually since late July. At present, the price of the US cotton December contract has rebounded from the low of 74 cents to 80 cents.

Although investors' concerns about the European debt crisis have now become calm, concerns about the economic outlook have not yet been completely alleviated. The US GDP growth rate in the two quarter is lower than the market expectations, indicating that the US economic recovery period will continue to extend, so the recent external market environment supporting the cotton price rebound is still not optimistic.

In addition, from a technical point of view, after the US cotton has rebounded sharply, it will also face adjustment in the near future.

Because of the abundant inventory of textile enterprises and the upcoming sale of national reserves, the new cotton will soon be on the market. The domestic cotton supply will be more abundant later. In addition, the downstream textile enterprises will have greater pressure to survive or lower their purchasing enthusiasm due to the pressure of raw material costs, labor costs and RMB appreciation pressure.

To sum up, we believe that the recent sustained rally in Zheng cotton is less sustainable and there is less room for the price to go up.