Cotton Market Outside Strong, Weak, Short-Term, High Inventory Digestion Path Becomes The Key.

Main points:

On the international side, according to the US Department of agriculture's March report, in 2018/19, global cotton output and ending stocks increased slightly, and import volume was reduced slightly, and the overall report was neutral.

At present, the market is still waiting for the signing of the Sino US trade agreement, and India MSP is still an important price support in the future.

In the future, we need to further track the cotton planting situation in the new year.

Domestically, cotton production is expected to increase slightly.

In the short term, domestic cotton business inventories are at a high level, with a slight fall from the high level in 2-3 months. The hedging pressure on the disk still limits the space for price increases. However, judging from the annual supply and demand balance sheet, the global and Chinese cotton inventories have declined, and domestic cotton supply has entered a tight balance.

Overall, domestic cotton inventories have dropped, but inventories are still high, and the pressure of hedging is obvious. The cotton market will play a short-term game between high inventory and long term tight balance. Later, attention will be given to the upper cover pressure and downstream order status. The main contradiction points of the future trend of international cotton prices will still be concentrated in Sino US trade wars and weather conditions, and Sino US trade negotiations are repeatedly fermented and the market uncertainty will increase.

In addition, cotton planting in spring is about to start. Attention should be paid to cotton planting in the new year.

1. Weather conditions, planting intentions and Sino US trade war affect cotton prices in the future.

In March 2019, thanks to the positive impact of Sino US negotiations and the support of India MSP to build the global cotton price stage, the price of US cotton rose steadily, and the concussion went upward. However, the Sino US trade agreement was pending, and the prospect of consultation remained uncertain. The market concerns shifted from the supply side to the consumer side.

After March, cotton planting in spring is about to begin. Attention should be paid to the latest planting intentions. The global production and demand in the new year is expected to be balanced.

1. Pay attention to actual planting and weather conditions.

With the advent of the new cotton growing season in the new year, the focus of the market is mainly focused on tracking the actual planting and weather conditions.

The latest US area of intent report shows that in 2019, the US intention to plant cotton area decreased by 2.3% over the same period last year, not only increased but decreased, and brought strong support to the market. But considering the combined yield and discarded yield consideration and excluding weather factors, this year's US cotton production will increase significantly.

2, the market is waiting for a substantive and good agreement between China and the United States.

The issue of Sino US trade affects the consumption demand of cotton upstream and downstream.

The low consumption expectation is the primary reason for the sharp decline in the cotton market in the second half of 2018.

Since China imposed the import tariffs on US cotton, the impact on US cotton exports in the short term has been immediate. Since May 2018, China has substantially reduced the US cotton orders, and the US cotton export destination has shifted from China to Brazil.

Domestic consumption expectations are still low.

According to the latest research process, the textile enterprises reflect that the trade frictions between China and the United States intensified since September last year, and the export orders were greatly affected. The upstream enterprises had a strong wait-and-see mood, and some orders were pferred to Southeast Asian countries.

At the beginning of the year, the trade relations between China and the United States eased, and some orders returned home.

Fortunately, after nearly a year of turmoil, the Sino US trade issue has finally been relieved. The US postponed the time when it was scheduled to impose further tariffs on Chinese exports to the United States in March 1st.

It is expected that the two sides will continue negotiations in the US in early April.

Despite expectations of optimism, the leaders of the two countries have yet to sign a possible agreement, and the risk of market volatility still needs to be done ahead of schedule.

Without consumption drive, there will be no real rise, and the excitement of good news is fleeting.

Only if China and the United States sign a long-term and stable agreement to bring substantial benefits to the market and give sufficient market confidence to the market can we guide cotton prices to break through the concussion zone effectively.

3, India MSP is still an important price support in the future.

The India Cotton Association (CAI) March India cotton supply and demand balance table will again reduce the total output of India this year, a slight reduction of 3.4 to 5 million 576 thousand tons from the previous month, a decrease of 0.6%, a 11.2% decrease compared with the previous year.

Recently, cotton prices in India have bottomed out.

In March 18th, the S-6 pickling factory picked up 44400 rupees / candi, 82.55 cents / pound, 2.1 cents / pound, J-34 4610, rupee / Mond, 81.65 cents / pound, 2.75 cents / pound, and the average daily volume of cotton in India decreased, indicating that the actual output was much lower than expected.

The rise of cotton prices in India has played a supporting role in international cotton prices.

Two, domestic cotton market supply exceeds demand, high inventory.

Since the end of March, Zheng cotton has not followed the US cotton to the upstream channel, and the whole range continues to shake.

On the one hand, domestic cotton business inventories are at a high level in the short term, with a slight drop from high in 2-3.

Short term supply is loose, warehouse receipts are at a high level, the industry will increase the hedging force and limit the space above the price when the disk is profitable; on the other hand, from the annual supply and demand balance sheet, the global and Chinese cotton stocks will decline, domestic cotton will enter a tight balance, the price elasticity of cotton will increase, the space under the price will be limited, and the futures low position will become a strong support, but in the later stage, we still need to pay attention to the upper cover pressure and the downstream order situation.

1, domestic cotton is expected to increase slightly.

According to the sampling survey of the national cotton market monitoring system, as of March 15, 2019, cotton picking in the whole country was basically over. According to the prediction of 6 million 75 thousand tons of domestic cotton output in 2018 (the national cotton market monitoring system was forecast in 2018 and November), as of March 15th, the national total output of 5 million 864 thousand tons of lint (5 million 10 thousand tons of Xinjiang processed) increased by 77 thousand tons compared with the same period in March 15th. The total sales of 3 million 56 thousand tons of lint (including 2 million 489 thousand tons of Xinjiang sales) were reduced by 181 thousand tons compared with the same period last year.

2, downstream demand is expected to gradually warmer, stocks fell slightly.

After the commencement of the holiday, cotton inventories declined slightly.

The sampling survey of the national cotton market monitoring system showed that as of the beginning of March, the average daily use of cotton in the sample survey enterprises was about 44.8 days (including the number of imported cotton), a decrease of 1.6 days compared with that of the previous year, and the estimated 986 thousand tons of cotton industry in the same period decreased by 5% compared with the same period last year. As at the end of February, the total cotton business inventory in China was about 4 million 568 thousand and 600 tons, a decrease of 283 thousand and 400 tons from the previous month, a decrease of 5.8%, a decrease of 3.6% from the previous month, and a national cotton industrial stock of 809 thousand and 300 tons, a decrease of 4.43%, an increase of 19.85% over the same period last year.

Comparison of cotton business inventory trend since 2010

Comparison of cotton industry stock trend since 2010

A large number of warehouse receipts guarantee, suppress prices obvious.

As of March 25th, the total amount of zhengmian warehouse receipt and forecast was 21109, and the spot price of cotton was 844 thousand tons, accounting for about 15% of domestic output, and the positive rate of Zheng cotton was as high as 38%.

Among them, Chen cotton accounted for about 1000 copies in 2017/18, facing cancellation, but more 2018/19 new cotton. This part of the warehouse receipts digestion path is also the key to future cotton price trend.

CF1905 contract corresponds to the set pressure level of about 15500-16000 yuan / ton, if there is no strong driving is difficult to break through.

Such a large quantity will be digested and unrealistic by the May discount delivery, and whether it can be slowly digested by moving the warehouse or waiting for time will still have to wait for the market choice in April.

At present, the difference between the 5-9 months' contract price is -460 yuan / ton, with the annual 8% calculation, it will take about 100 points to expand.

Comparison of cotton registered warehouse receipts since 2010

According to the statistics of National Bureau of statistics, the cotton yarn output of the whole country was basically flat in January 2019; cotton blended yarn output decreased by 5.22% compared with the same period last year; cotton cloth output increased by 7.58% compared with the same period last year.

Yarn production and sales rate was 97.1%, down 1.7 percentage points year-on-year, inventory for 21.5 days sales, a decrease of 0.1 days compared to the same period; the sales rate of cloth was 96.8%, up 8.4 percentage points compared with the same period last year, the inventory was 34.8 days sales, reduced by 15.1 days compared to the same period, but the export data of spinning and weaving were bad, or affected by the Spring Festival.

According to the General Administration of customs statistics, as of March 8, 2019, China's textile and apparel exports totaled 38 billion 155 million US dollars in 1-2 months, down 12.17% from the same period last year.

Whether the downstream demand is really improving will still need to wait for further verification in March.

Stock chart of yarn and grey fabric

Garment and accessories export trend chart

3, the profit margins of imported cotton are relatively large.

In April, the value added tax rate will begin to decline, the cost of imported cotton will continue to decrease, stimulating the spot price difference between domestic and foreign cotton will widen, and the price advantage of imported cotton will be more obvious. It is expected that the textile mill will increase the purchase of foreign cotton, which will squeeze part of domestic cotton consumption. However, from the total point of view, the quota will have a limited impact on cotton price before the issuance.

Actual profit margin of imported cotton

Overall, although domestic cotton inventories have dropped somewhat, they are still high, and the pressure of hedge is obvious, which is a game between short-term high inventory and long term tight balance.

Later attention to the upper cover pressure and downstream order status.

The main contradiction between the future trend of international cotton prices is still focused on Sino US trade war and weather conditions.

The Sino US trade negotiations have been fermented repeatedly, and the market uncertainty has increased.

In addition, cotton planting in spring is about to start. Attention should be paid to cotton planting in the new year.