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What'S Wrong With China-Cotton Trade?

2019/12/16 9:30:00 0

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Sino US Trade Negotiation Is Good Zheng Mian

Last week, the US and China negotiated good news. Trump said that it was "very close to China" and that the US cotton rose by 2.05%. However, Zheng cotton showed a general performance. The cotton contract 05 closed up 0.75% in December 13th.

Favorable trade negotiations

In December 12th, Trump tweeted "close to China and reached an agreement". In addition, the Wall Street Journal reported that the US negotiator proposed a tariff reduction of 50% on the 360 billion dollar commodity first proposed by the US. Thanks to this good news, domestic and foreign cotton futures price linkage rose. Driven by optimistic expectations from China and the United States to reach a trade agreement and strong export sales support for market sentiment, ICE cotton climbed more than 2% to six month highs on Thursday. Zheng cotton rose to a maximum of 13480 yuan / ton. However, the upward trend of Zheng cotton futures did not last long. In December 13th, Zheng cotton fell back. Overall, the market trend is not satisfactory, and the market reaction is flat.

Cotton contract is cold

In December 12th, the number of New Zealand's cotton entering the market was 7000 tons, and the actual turnover was 1400 tons, with a turnover rate of 20%. The average transaction price was 13292 yuan / ton. Since December 2nd, the actual turnover rate has not been high since the reserve cotton rotation. The state requires higher quality of storage and purchase, resulting in high quality cotton market lift. The policy of purchasing and storage is never the bottom of the market. The higher purchasing and storage will only have substantial support for the market after the transaction is quantified. It will take time to adjust, and it will take two or three quarters to adjust.

Cotton supply and demand pattern improvement in 2019/2020

In November, USDA reported a sharp reduction in cotton production of 617 thousand tons in 2019/2020. Among them, India has reduced output by 109 thousand tons, China has reduced output by 109 thousand tons, the United States has reduced output by 194 thousand tons, and Pakistan has reduced output by 131 thousand tons. Global end stocks dropped 2.3% to 66.4%, and cotton supply side pressure eased.

Affected by the cold weather in Xinjiang in 6-7, the harvest of Xinjiang cotton in 2019 was postponed for 7-10 days compared with last year. The market has changed from the expected increase in September to the expected reduction in October. Some agencies have predicted that the cotton output in Xinjiang will be reduced by 10% at the end of 2019/2020. From the processing point of view, in December 12th, Xinjiang accumulated 4 million 12 thousand and 600 tons of processed lint, an increase of 1.88% over the same period last year, processing 47 thousand and 900 tons of lint yesterday, and processing 46 thousand and 800 tons in the same period last year. From the processing results, the cumulative processing volume was higher than that of the same period last year, while the average daily processing volume was lower than that of the same period last year. The output of Xinjiang cotton has been maintained at 4 million 990 thousand tons, unchanged from 3.5% last year. The total output of cotton in China has remained 5 million 570 thousand tons, a decrease of 20 tons compared with last year. Generally speaking, domestic and foreign cotton supply pressure has been reduced in 2019/2020.

Downstream demand is weak.

In October, the national yarn production was 2 million 478 thousand tons, down 165 thousand tons compared with September, and the cloth output was 3 billion 790 million meters, which was 520 million meters lower than that in September, and the downstream demand was obviously shrinking. The industrial chain shows that cotton yarn is weaker than cotton, cotton cloth is weaker than cotton yarn, and textile and clothing is the weakest. In October, the domestic retail sales of clothing and footwear knitted fabrics were reduced by 0.8% compared with the same period last year, while the export volume of textile and clothing decreased by 1.67% compared with the same period last year, of which clothing declined by 5.92%. In November, exports of textiles and clothing decreased by 4.3% compared with the same period last year, and exports declined for four consecutive months. China's textile exports are still declining, and domestic and foreign demand is falling at the same time. Cotton consumption is hard to boost in a short time.

More than half of new cotton processing, inventory accumulation

As of December 11th, 4 million 12 thousand and 600 tons of lint cotton were processed in Xinjiang, an increase of 1.88% compared with 3 million 938 thousand and 400 tons in the same period last year, and the new cotton processing will end this month. Wind information shows that as of October cotton business inventories of 3 million 93 thousand and 600 tons, an increase of 890 thousand and 100 tons from last month cotton inventory is still a loose pattern. In October, the cotton industry inventory of the national cotton textile enterprises increased by 8 thousand and 200 tons, but still far below the same period last year, and the downstream orders were reduced. As downstream demand is difficult to significantly improve, with new cotton entering the market in a row, later inventory will continue to accumulate, suppress cotton prices rise.

Zheng cotton warehouse list continues to increase

At the beginning of November, the total amount of zhengmian warehouse receipt (including effective forecast) was 11861, and the warehouse receipt was 474 thousand and 400 tons. In December 12th, there were 21987 cotton warehouse receipts in Zhengshang office, 5880 effective forecasts, totaling 27867 pieces, an increase of 16006 over the beginning of the month, an increase of 134.94%, the highest value in the history of Zheng cotton since its listing, and the total warehouse receipt inventory totaled 1 million 114 thousand and 700 tons, an increase of 640 thousand and 300 tons from the beginning of the month. Due to the sharp rise in the proportion of hedging and the sluggish sales, the warehouse receipts will continue to increase, and cotton prices will face greater upward pressure.

The outstanding trade negotiations have been positive. Zheng cotton has shown a general trend, which shows that the main factor affecting the price of zhengmian is its own fundamentals. Supported by cost, cotton is unlikely to fall sharply. In the short term, the main pressure on cotton is the pressure of warehouse receipts. The huge volume of warehouse receipts is still increasing, and the pressure on cotton growth is very great.