Since mid-to-late June, Zheng Cotton has started a volatile correction. The main CF2309 contract has continuously broken through integer marks such as 17,000 yuan/ton and 16,500 yuan/ton from 17,020 yuan/ton. The early trading low on June 26 was 16,200 yuan/ton, and the callback The range exceeds 800 points. Most cotton textile companies, traders and cotton processing companies with a high hedging ratio are looking forward to the opportunity to “close orders and sell spot” when Zheng cotton falls below 16,000 yuan/ton or even 15,500 yuan/ton.
It is generally judged in the industry that the main factors that triggered this round of Zheng cotton’s decline are cotton textile companies’ large-scale losses due to spot spinning, the slowdown in new orders, rising concerns about declining cotton consumption demand, and the sharp rise in temperatures in Xinjiang in June. Cotton growth At a faster pace, expectations of a decline in unit yields have weakened. Coupled with the expansion of domestic and foreign cotton prices, cotton-using companies have increased inquiries/orders for foreign cotton, foreign yarn shipments/bonded cotton, and the current cotton policy is in a vacuum. Therefore, it is reasonable for Zheng Mian to pull back.
However, the author does not agree with the view that Zheng Cotton will have a deep correction this round. The market is expected to stabilize at 16,000 yuan/ton, with a high probability of rebound. Cotton-related companies and institutions need to be cautious when bearish. The reasons can be briefly summarized as follows:
The first is to pay attention to the recent weather in the Xinjiang cotton area. Recently, most of Xinjiang has experienced high temperatures and low precipitation. It is expected that the high temperature weather in eastern and southern Xinjiang in late June will have an adverse impact on cotton in some areas. Farmers need to increase field management and replenish water and fertilizer in a timely manner. According to weather forecasts, El Niño will occur in my country’s main cotton-producing areas from July to September, including most provinces in Xinjiang, which will face the test of sustained high temperatures and drought. Whether it will cause damage to cotton yields requires great attention.
Second, the continued sharp decline in cotton imports year-on-year may intensify the pressure on cotton supply from July to October 2023. According to statistics, my country’s cumulative cotton imports from January to May 2023 decreased by 50.9% year-on-year, and cotton imports this year decreased by 21.5% year-on-year. Considering factors such as the continued appreciation of the RMB and the delay in the introduction of sliding tariff quotas in 2023, 7-10 Monthly cotton imports are expected to remain sluggish.
Third, expectations for high cotton prices in 2023/24 have been formed. On the one hand, the national/Xinjiang cotton planting area will decrease to a certain extent in 2023, coupled with the release of cotton consumption demand after the epidemic and the good expectations of the gradual recovery of the global economy and textile and clothing consumption, the probability of cotton futures rebounding in the medium and long term is relatively high; on the other hand; The rush to harvest seed cotton in Xinjiang in 2023 may be difficult to avoid, and the high cost has promoted the steady upward trend of Zheng cotton.
Fourth, the central bank’s monetary policy will continue to be loose and ultra-loose in the second half of 2023, which will be conducive to the rebound of the stock market and commodity futures market. On June 20, the central bank announced the latest loan market quotation rate (LPR): 1-year LPR is 3.55%, and LPR over 5 years is 4.2%. This is the first time the central bank has lowered the LPR since August 2022. According to industry analysis, monetary policy will adopt a “total + structural” dual easing approach in the second half of the year. It is expected that there will still be RRR cuts and interest rate cuts, and structural policy tools will continue to be effective.