One Word: Cotton Will Stabilise In The Short Term

Due to tight supply in the spot market, high production costs, and the warming of the peripheral environment, Zheng cotton will stabilize and recover in the short term.

However, the current price and internal and external prices deviate too much, and consumer demand is difficult to pick up.

The near future,

As of February 20th, the State Reserve accumulated 2589860 tons of cotton, including 1525760 tons of Xinjiang cotton and 1064100 tons of cotton in the mainland.

As the purchase and storage price of 19800 yuan / ton is far higher than the spot price of 19600 yuan / ton, which has great attraction for the cotton ginning enterprises, a large quantity of cotton flows into the national storage stock.

According to our prediction, the purchase volume of the State Reserve will be around 3 million 100 thousand tons this year. According to the balance sheet of supply and demand, the inventory will be 364 thousand tons at the end of the year, and the inventory consumption ratio is far below 10%.

Therefore, the spot will show a phased supply shortage.

In addition, as of February 20th, there were 704 cotton futures warehouse receipts, 1078 effective forecasts, and a total less than 40 thousand tons of cotton lint, which is far below the level of 850 thousand tons in the main contract.

The futures market without the pressure of warehouse receipts is relatively favorable for the bull market, especially after the central bank announced the lowering of the deposit reserve ratio.

All these support cotton prices to stabilize and rebound. Therefore, the adjustment market caused by the excessive base period of cotton futures will come to an end.

Cotton planting area will drop.

This year, Central Document No. 1 clearly stated that we should steadily raise the minimum purchase price of wheat and rice, and timely start the temporary storage and purchase of corn, soybeans, rapeseed, cotton and sugar, and improve the reserve system of grain products such as grain, cotton, oil and sugar.

The dramatic increase in the prices of grain crops directly stimulated farmers' enthusiasm for planting rice, corn, wheat and rapeseed.

And cotton planting costs high, labor and labor, and vulnerable to weather.

From the middle and lower reaches of the Yangtze River, the cotton yield is less than 800 yuan per mu.

Therefore, cotton related research institutes predict that the cotton planting area in the mainland will decrease by more than 8% this year.

PTA strong support cotton prices further higher

Due to the tense geopolitical situation, crude oil once again rose to the top of 100 US dollars / barrel, and the power of technology rise is strong, which has certain support for PTA.

In addition, PTA spot maintained at 8800 yuan / ton high, in the short term, PTA futures price is expected to return to 9000 yuan / ton.

Therefore, it is unlikely that cotton will fall short of 21000 yuan / ton in a short period of time with PTA.

The difference between domestic and foreign cotton prices is further enlarged.

At present, the domestic price difference is still maintained at 2000 yuan / ton, and the cotton price is 3000 yuan / ton higher than that of the US cotton. The unreasonable price difference will lead to the increase in warehouse receipts and the increase in imports.

In particular, the difference in cotton price between inside and outside is too large, which directly causes the domestic market to increase greatly to the international market purchase, and to a certain extent alleviate the supply shortage caused by the large number of acquisitions.

Authoritative consultancy expects that China's cotton imports will reach 3 million 200 thousand tons this year, an increase of 23% compared with 2 million 600 thousand tons in 2010/2011.

After the Spring Festival, the difference between domestic and foreign cotton prices will further expand. Traders will increase their willingness to import cotton. The number of cotton to port in the next three months is likely to increase rapidly, which will cause pressure on the spot price to go up.

Conclusion

As supply in the spot market is relatively tight, production costs are high, and the external environment is warming up, Zheng cotton will stabilize and recover in the short term.

However, due to the excessive deviation of current price and internal and external cotton prices, coupled with the difficulty of consumer demand, medium term Zheng cotton maintains a larger probability of Interval Oscillation finishing.