Zheng Cotton Appeared In The Fourth Limit During The Year. Cotton Prices Will Remain Weak In The Whole Year.

In July 9, 2019, Zheng cotton appeared the fourth limit in the year, and the other three limit appeared in May 13th, May 14th and June 3rd respectively. From the position, the two limit of May was lighten up, and June and July increased. Among them, in July 9th, there were 2638 additional positions on the side, with the average price of 13382 yuan per ton per day, and the margin 5% estimated that the required funds were less than 9 million yuan, reflecting the fragility of the market in the side.

In our semi annual report - "the overall trend of cotton prices weakening and seasonal rebound" under the downward trend of demand, we believe that Sino US economic and trade relations are uncertain about the negative export of textile and clothing, which is not conducive to domestic cotton consumption. The United States plans to impose a tariff of 25% on the US $300 billion surplus in China's exports to the United States, and the US $200 billion plan will be raised from 10% to 25%. Due to the pending measures, the terminal orders are on the high side, and the downstream gauze factories stop and reduce production continuously.

Affected by the shrinkage of orders, the inventory of finished products has been overloaded. Since the Dragon Boat Festival, the downstream gauze enterprises have stopped and reduced production to finish the inventory of finished products. From the feedback situation of downstream enterprises, the downstream orders are slowly recovering.

It is estimated that cotton business inventories will reach 2 million 500 thousand tons at the end of 2018/19, and cotton prices will remain weak as a result of the acquisition of new cotton.

Risk: cotton rotation, weather in main cotton producing areas, Sino US economic and trade relations

One

Love knows the truth.

Cotton business inventories hit a new high

Data show that in May 2019 cotton business inventories of 3 million 528 thousand and 100 tons, a year-on-year high. The inventory of cotton industry continued to decrease, reflecting the weak mentality of the downstream textile enterprises to the cotton market.

It is estimated that domestic cotton business inventories exceed 2 million 500 thousand tons at the end of 2018/19 (end of 2019.8), a record high. The acquisition of corporate funds at the end of the year 2018/19 is bound to affect the acquisition of cotton in 2019/20, or lead to a downward pressure on cotton purchasing prices in the new year.

The current market supply of cotton is imported cotton, reserve cotton and social inventory. From 2018/19 to now (2018.9-2019.5), cotton has a total import volume of about 1 million 590 thousand tons, with an average monthly import volume of about 180 thousand tons. In 2019, the relevant departments planned to turn out 1 million tons of cotton reserves, and the total output in the 5-6 months was about 350 thousand tons, the remaining amount was about 650 thousand tons, and the average monthly turnover was about 220 thousand tons. 6, 7, 8, three months, domestic cotton consumption is about 700 thousand tons per month. It is estimated that domestic cotton business inventory will exceed 2 million 500 thousand tons by the end of August 2019.

Estimation process:

Business inventories 3 million 530 thousand tons - three months after the year consumption 70*3+ three months after the import volume 18*3+ three months after the reserve cotton volume 15+22*2=256 million tons. That is to say, the commercial inventory level of cotton will reach more than 250 million tons at the end of 2018/19, which will be much higher than that of 1 million 630 thousand tons in the same period last year.

Two

Market outlook

Large quantities of cotton business inventory will seriously occupy corporate capital, lending institutions in the acquisition process of new cotton is bound to upgrade the wind control measures, resulting in the acquisition of new cotton pressure.

Therefore, we maintain the viewpoint of semi annual report: the overall weakness of cotton prices is concerned about seasonal rebound trend when demand falls.

Three

Main risks

1, cotton rotation policy

In a notice issued by the State Grain and material reserve bureau and the Ministry of Finance on the arrangements for the rotation of cotton reserves in 2019, it is pointed out that in order to optimize the structure of central cotton reserves and ensure good quality, some central cotton reserves will be rotated in 2019. According to the actual output of cotton reserves and the supply and demand situation in the cotton market, the relevant departments of the state have arranged for rotation.

If the reserve cotton goes in, additional demand will be added to support cotton prices in stages.

2. Cotton main production area weather

At present, in the critical period of cotton growth and planting in China, the United States and India, disaster weather will support cotton prices periodically.

3, Sino US economic and trade return to normalization.

If Sino US economic and trade relations are normalized again, the threat of a 300 billion dollar levy will be totally eliminated, which will support cotton prices.