The Worst Period Of Cotton Prices Has Passed? Watch Out For These Accidents.

In May last year, Zheng cotton market was soaring, but in May this year it experienced a "collapse" under the cost.

This fluctuates, which is the personality of the cotton market and "love hate" for the industry.

At present, the cotton market has entered the "darkest hour".

It can be said that Sino US trade friction is the primary factor that causes great changes in the market.

Sino US economic and trade consultations always affect market nerves, which decide our export orders for us textiles.

Without downstream consumption, cotton prices will not rise.

At present, the supply of market is very high, commercial stocks are high, state reserve stocks are out of stock, 800 thousand tons of additional issuance quotas, coupled with the prospect of supply and demand in May, the USDA report is in short supply.

However, is this the worst case in the market?

Maybe, because there are still bad scenarios.

Changes in Sino US trade negotiations determine market orientation.

In the second half of last year, Zheng cotton market entered a long decline. The main factor was the tortuous trade consultation between China and the United States, and its downstream textile consumption also declined.

This time, the fuse for detonating cotton fell was that the US tariff rate on imports of US $200 billion from China increased from 10% to 25%.

From this factor alone, the impact on cotton consumption and export of cotton products is very limited.

However, the market does not think so. The market has already included the worst scenario: if the US impose tariffs on the remaining 300 billion US dollars, it will include China's larger exports of goods to the United States, such as woven garments, knitted garments and household textile products, which will involve about 45 billion US dollars in exports to the United States.

So, insiders have calculated that if the export to the US is blocked, it is estimated that the domestic cotton consumption will be reduced by about 1 million tons (-12%).

The US tax timetable for the remaining commodities is scheduled for the middle of June.

Today, Zheng cotton market has included this worst-case scenario.

If the US continues to expand the scope of tax increases as planned, the impact on Zheng cotton will not only be reflected in the psychological level but also in the price level, but the scope is limited.

Is there any worse case then?

That is the Sino US economic and trade consultations "closed".

In this way, the global consumption pattern will undergo significant changes.

The timetable is tentatively scheduled for the end of June (G20 summit in Japan).

From the actual consumption situation, since April, the consumption of textile and clothing has continued to be weak.

Customs data show that in April 2019, China's exports of textiles and clothing decreased by 9.4% over the same period, and the cumulative export volume decreased 1 from April to April.

Effective supply is adequate.

According to the China Cotton Association data, the total cotton inventory in the end of April was about 3 million 790 thousand tons, which decreased by 360 thousand tons in the month, but increased by 920 thousand tons compared with the same period last year.

It can be seen that domestic cotton business inventories are in the same period of high and slow decline.

This year, 800 thousand tons of quasi tax quotas were released earlier than last year. It is estimated that the imported cotton will arrive in June.

In April 23rd, the State Reserve Bureau announced that in order to optimize the central reserve cotton structure, some central cotton reserves would be rotated in 2019.

From May 5th to September 30th, the total output was 1 million tons. In principle, it sold about 10 thousand tons per working day.

From the actual paction situation, before May 13th, cotton reserves maintained a turnover rate of 100%.

Compared with commercial cotton, reserve cotton has higher cost performance.

However, with the fall of zhengmian and the sharp decline of cotton, there has been a sharp fall in the auction rate of cotton reserves.

According to the bottom price announcement issued by China cotton net, the selling price of the third week (May 20th to May 24th week) was 13893 yuan / ton (standard class price), down 579 yuan / ton compared with the previous week.

From the perspective of supply, the above three additivity can be concluded that the supply from 5 to September is 5 million 590 thousand tons.

Compared to the monthly consumption of about 700 thousand tons, the supply is greater than the demand of about 2 million 90 thousand tons.

It seems that the effective supply of cotton during this period is very sufficient.

From the perspective of hedging, as of May 22nd, Zheng cotton registered 18593 warehouse receipts, equivalent to 743 thousand tons of cotton.

As a result of the 1905 contract deliveries, there will be about 100 thousand tonnes of solid deliveries, so the warehouse receipts will show a small outflow.

In this way, the remaining large quantity of hedging warehouse receipts will be suppressed in the 1909 contract.

At present, the price of the 1909 contract is around 13500 yuan / ton, and the selling price of the package will not be interesting, because the cost of the 3128 level cotton picking is about 15200 yuan / ton.

However, as long as prices rise to the appropriate psychological level, there is still a large demand for hedging.

It can be envisaged that if the Zheng cotton market is bottoming up, there will be many hedging blocks on the way.

The May USDA report shows an empty prospect.

At present, the seeding in the northern hemisphere is coming to an end.

It is reported that China's cotton planting area is 47 million 530 thousand mu, down 1.5% compared with the same period last year.

The cotton planting area in the United States is 13 million 780 thousand acres, a decrease of 2.2% over the same period last year.

In this way, the reduction of area will cause the market to be sensitive to the fluctuation of the weather.

But in May, the USDA supply and demand report gave an empty scenario.

Judging from the US situation, despite the decline in planting area this year, the US cotton production is expected to reach 4 million 790 thousand tons in 2019/2020, an increase of 790 thousand tons (+20%) compared with the same period last year, and the export growth of 490 thousand tons to 3 million 700 thousand tons, resulting in an increase of 37% to 1 million 390 thousand tons in the end of the stock.

From the perspective of global supply and demand, global cotton production will grow in 2019/2020, up 1 million 520 thousand tons to 27 million 340 thousand tons compared with the same period, but it is expected that consumption will only increase from 700 thousand tons to 27 million 450 thousand tons during the year.

Thus, production and demand returned to a state of easy balance, resulting in a slight decline in end inventory (16 million 500 thousand tons) and inventory consumption ratio (60%).

By contrast, there is a supply gap of 933 thousand tons in global production and demand this year, which is in a tight balance.

According to USDA data, the increase of global cotton output in 2019/2020 mainly comes from the United States and India. However, the global demand is limited. It is expected that the US cotton will show parallel seasonal fluctuations.

However, the data itself will be greatly adjusted along with the change of the weather and macro situation.

From the perspective of supply and demand in China, cotton production in China basically remained unchanged at 6 million 49 thousand tons in 2019/2020, the consumption volume increased by 491 thousand tons to 9 million 47 thousand tons in the next year, and the import volume increased from 545 thousand tons to 2 million 398 thousand tons; the end of the stock dropped by 628 thousand tons to 6 million 701 thousand tons (warehouse to consumption ratio 74%).

Compared with 2018/2019, China's final inventory dropped to 7 million 330 thousand tons (sink to consumption ratio 83%).

Although the gap in 2019/2020 was up to 2 million 998 thousand tons, most of them were filled by imports, resulting in a small drop in inventory.

If the Sino US trade talks break down or the global economic downturn is going on, then cotton consumption will not increase but decrease.

Conclusion: the worst period has passed?

Now, under the prospect of adequate supply, China's export orders to the US have "shock", "engine" flameout, resulting in the price plummeting is not difficult to understand.

Now, what we want to know is: has the worst time passed?

It should be said that the biggest profit has basically been released, so the space for Zheng cotton to fall is limited.

But there are two situations that are beyond expectations: one is the complete breakdown of Sino US negotiations; the two is that negotiations have evolved into a lasting "cold war".

Now, give the corresponding speculation in chronological order.

In mid 1.6, it was concerned about whether the US side would impose tariffs on the remaining $300 billion export commodities of the Chinese side.

If so, it will aggravate the difficulty of negotiation and have a limited impact on cotton market.

At the end of 2.6, the G20 peak was held in Japan, focusing on Sino US summit and possible outcomes.

This is a very important time node and determines whether the Sino US trade negotiations can achieve substantive results.

As long as some results can be achieved, then for cotton will be a great good, otherwise, will fall into a long weak state.

3. in the fourth quarter, the focus of the market is: what about cotton production in China and the United States?

1909 the delivery pressure of the contract and the expectation and pressure of the new cotton sets.

Before and after December, the focus of attention was: whether the procurement and consumption in winter will enter the peak season as scheduled?

On the whole, if China's new cotton crop is cut down in the fall, the 1 million tons of cotton will be restocked and the economic and trade negotiations between China and the United States will resume. Then, after the 1909 contract delivery, driven by the peak season of winter consumption, the market is expected to form a wave of rising prices and will continue until next spring.