Cotton Price Downward Pressure In The Middle And Lower Reaches Is Still Passive

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The purchase of seed cotton in Xinjiang's main production areas has basically ended, and the purchase price has fallen steadily. At present, the purchase price of machine picked cotton is 9.5-9.8 yuan / kg, while that of hand picked cotton has dropped to 10.2 yuan / kg, returning to the level at the initial stage of purchase. As of November 23, Xinjiang lint processing total amount of 3.0699 million tons, processing progress has been more than half.

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? ? The second round of reserve cotton was put into operation to further guarantee the market supply. Since November 10, the State Reserve has put in 600000 tons of reserve cotton every day. Compared with the first batch launched in the year, the details of the abandonment have changed: first, the deadline is not indicated; Second, according to the market situation, we can further increase the amount of cotton reserves; Third, the wording of the remaining reserve cotton is further specified as "Xinjiang and imported reserve cotton".

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? ? ? This dumping and storage reflects the determination to stabilize the market and increase supply. Meanwhile, Xinjiang cotton and imported cotton of 2019 are added. Compared with the first batch of old cotton, the quality is improved, which forms a structural supplement to the market demand, and may delay the time of receiving new cotton downstream. From the perspective of policy signals and supply increase, new cotton prices will be impacted.

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? ? ? Cotton mill profits shrink, its tolerance to high cotton prices declined. With the comprehensive recovery of the textile and clothing industry, from December 2020, the mill will enter a high profit cycle. The theoretical profit of 32 combs is basically over 2000 yuan / ton, which is at the high level in recent years. However, since October 2021, due to the rise of new cotton purchase price and the weakening of downstream demand, the profit of cotton processing sector has improved and turned to positive value, while the profit of cotton yarn segment has shrunk. When the low-cost raw materials in the early stage are consumed, the cost of raw materials is bound to rise, and the production profit may further shrink. Generally speaking, it is difficult for the middle and lower reaches of the industrial chain to continue to accept high cotton prices when the profits of various yarn varieties have turned negative.

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At present, domestic textile and clothing demand continues to decline, while foreign demand is also restrained. The actual growth rate of domestic retail sales of social goods decreased, while the domestic sales of textile consumer goods performed poorly. As of October, the retail sales of social goods increased by 4.9% year-on-year, 0.5% faster than that in September. However, after deducting the inflation factor, the actual growth rate of social commodity retail sales showed a downward trend, and the growth rate slowed down by 0.6% compared with September. Among them, the year-on-year growth rate of retail sales of clothing, shoes, hats and knitted goods was 17.4%, and that of online "wear" goods was 14.1%, both falling from the high level at the beginning of the year.

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In the future, the prosperity of cotton textile industry is relatively pessimistic, and the consumer confidence index is down.

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? ? As of October, the purchasing manager's index of cotton textile industry has dropped to 36.06%, falling for three consecutive months, which is equivalent to the low level during the epidemic period in 2020. Among them, the new orders, production volume and start-up rate PMI of sub indicators are less than 40%. At present, the situation of domestic epidemic prevention and control is still grim, and the recovery of the consumer market is facing uncertainty. At the same time, under the impact of energy consumption double control, high international commodity prices, and national economic transformation and adjustment, the prosperity of the cotton textile industry has declined significantly, and the cotton price has been obviously under pressure.

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In addition, consumer confidence index is also in the downward channel. In September, the domestic consumer confidence index was 121.2, and the sub index consumption intention index was 110.2, which was relatively higher than the previous month. However, the consumer confidence index reached a peak of 127 in February. Compared with the previous data, it can be said that the operation center of gravity of the index is moving down. In the United States, the University of Michigan's consumer confidence index was 77 in November, down sharply from its February 101 high. In the context of high inflation, American households are relatively pessimistic in their assessment of economic strength and financial changes.

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Looking back on history, the current demand situation is similar to the cotton price decline in 2011. From the comparison chart of cotton price trend and PMI data in 2007-2021, it can be seen that the financial crisis broke out at the end of 2008 and the new epidemic broke out in the beginning of 2020, which led to the PMI falling to around 30% in January 2009 and February 2020. In the next few months, with the economic recovery boosting, PMI and cotton prices showed a rising pattern. However, in February 2011, cotton prices fell rapidly from a high point of 35000 yuan / ton, and then stabilized in September, with a cumulative decline of more than 40%. The main reasons are: textile industry and terminal consumption can not afford high cost; The global economic recovery is weak, and the debt problems in Europe and the United States are frequent; Cotton price drop triggered the selling of circulation resources. Compared with 2010-2011, the current situation of cotton market is also faced with the problems that the middle and lower reaches cannot afford high costs and the global economic recovery is weak.

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? ? ? The profit is not good, and the enthusiasm of the middle and lower reaches is not high. As of October, the stock days of yarn and grey cloth in domestic market were 21.67 days and 28.04 days respectively. Since the second half of 2021, yarn and grey cloth inventory has accumulated rapidly, doubling from the low 8-9 days. As of September, the inventory of finished products of domestic textile enterprises above designated size was 98.03 billion yuan, an increase of 4.2% over the same period of last year, which was in a seasonal high.

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? ? ? As of October, the inventory of cotton industry was 844500 tons, down 69700 tons on a month on month basis, but increased by 123300 tons on a year-on-year basis, at a relatively high level since 2015. At the same time, the commercial inventory of cotton was 2.8364 million tons, which was 11.14% lower than 3.192 million tons in the same period of 2020, but it was at a relatively high level in the same period of nearly five years.

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? ? ? At present, the middle and lower reaches are still in the passive accumulation stage. Under the premise of poor profit, high cotton price and macro-economic pressure to restrain consumption, the middle and lower reaches of cotton are lack of power to replenish the reservoir, and they may even take the initiative to reduce prices to go to the warehouse in the later stage.

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In terms of supply, in November, the purchase of seed cotton in Xinjiang, the main production area of China, basically ended, and the disturbance of cost disappeared; During the year, the second round of reserve cotton has been launched, reflecting the attitude of ensuring supply. In the aspect of demand, the profit of the mill has been greatly reduced, and the bearing capacity of high cotton price has decreased; The purchasing manager index is down, the consumer confidence index is down, the domestic and external demand has been declining for several months, and the textile demand outlook is relatively pessimistic. In terms of inventory, the inventory level of the industrial chain is at a high level. Due to the poor profit and insufficient power of replenishment in the middle and lower reaches, it may even reduce the price and promote the inventory removal in the later stage.

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From the fundamental analysis, the downward pressure of cotton price appears, and there are short opportunities in the current market. In terms of strategy, it is suggested to short the may contract unilaterally with a target of 17500 yuan / ton. In this process, there are also risk points that need to be paid attention to, such as the state-owned reserve and replenishment warehouse.

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