Why is there insufficient motivation for Zheng Mian’s short-term correction?

Since June 5, Zheng Cotton’s main CF2309 contract has continued to consolidate in the range of 16,500-17,000 yuan/ton. From the perspective of technology, position changes, and mar…

Since June 5, Zheng Cotton’s main CF2309 contract has continued to consolidate in the range of 16,500-17,000 yuan/ton. From the perspective of technology, position changes, and market sentiment, bulls have no plans to make large profits and close their positions. For the 2023/24 year The bullish sentiment in the cotton market is still strong.

Although some cotton processing companies and cotton traders with relatively high hedging rates are currently in an embarrassing situation (the spot increase lags significantly behind that of Zheng Cotton, and the hedging book floating losses are larger); although the small and medium-sized cotton spinning companies that buy raw materials as they are used and have low inventory Enterprises are experiencing large-scale losses in spot spinning (high-count yarns and high-matching yarns are still profitable, but orders are relatively limited), and terminal inquiry/purchasing enthusiasm for US cotton, Brazilian cotton, etc. has continued to recover, but none of this has changed the high consolidation status of Zheng Cotton. . Judging from the disk, the disk prices of CF2309 and CF2401 contracts are once again inverted, indicating that bulls are more inclined to speculate on near-month contracts.

Why is Zheng Cotton’s lack of motivation for short-term correction different from the feelings of cotton traders and cotton-using enterprises? The author’s views are as follows:

First, concerns about tight domestic cotton supply in 2022/23 exist objectively. Expectations for a strong rebound in domestic cotton consumption starting in 2023 (many institutions and cotton-related companies have continuously raised China’s cotton consumption data for this year), cotton imports have fallen sharply (as of April, cotton imports this year fell 18.1% year-on-year), and polyester staple fiber Factors such as the weakening substitutability of chemical fibers such as viscose staple fiber and viscose staple fiber for cotton have increased the perception that cotton supply will be insufficient in September and October.

Second, the cotton planting area in Xinjiang will decrease in 2023/24, the yield is expected to be lowered, the cotton launch period may be postponed, and there are strong expectations that the price increase of seed cotton will lead to higher lint costs, etc., making bulls predict that cotton prices will run at a high level next year. Judging from current surveys by various institutions and cotton-related enterprises, the industry generally agrees that the cotton planting area in Xinjiang will decrease by 8%-9% year-on-year in 2023.

Third, monetary easing will continue to increase in the second half of 2023, with support from commodity futures and the stock market. On June 13, the central bank disclosed that the interest rate on the 7-day reverse repurchase was reduced by 10 basis points from 2% to 1.9%. This is also the first time the central bank has lowered the reverse repurchase rate since August 2022. According to industry analysis, this reduction in policy interest rates has released a clear signal of stable growth, which will effectively boost consumer and investment confidence and promote the real estate industry to achieve a soft landing as soon as possible. In the second half of the year, there is still the possibility that the central bank will cut the reserve requirement ratio or introduce structural tools in a targeted manner, which will help release long-term, low-cost funds, further reduce the cost of bank liabilities, and enhance the bank’s ability and enthusiasm for credit expansion.

Fourth, the number of Zheng cotton warehouse receipts + effective forecasts continues to decrease, and the pressure on firm orders is reduced. According to statistics, as of June 14, Zheng Cotton had registered 14,618 warehouse receipts (including 8,625 for Xinjiang warehouses and 5,993 for inland warehouses), and 735 valid forecasts, totaling 15,353. Except for a slight rebound on May 23, Since late April, it has been cloudy and falling every day.

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Author: clsrich