Zheng Mian continued to rebound and then pulled back. What’s the reason behind it?

Since February, Zheng cotton has shown a correction trend. Prior to this, Zheng Mian had rebounded for 3 consecutive months. So, what is the reason for Zheng Mian’s correctio…

Since February, Zheng cotton has shown a correction trend. Prior to this, Zheng Mian had rebounded for 3 consecutive months. So, what is the reason for Zheng Mian’s correction? What’s next?

Looking back at the historical market, Zheng cotton and US cotton maintained an oscillating decline pattern last year until the end of October. Zheng cotton fell to a low of around 12,270 yuan/ton. During the same period, US cotton fell to a key point of 70 cents/pound. After that, Zheng cotton rebounded strongly. Affected by it, it rebounded simultaneously. In mid-November last year, as the national epidemic prevention policy was further optimized, the central bank and the China Banking and Insurance Regulatory Commission issued 16 financial measures to support the stable and healthy development of the real estate market. The market has doubled its confidence in the recovery of the domestic economy in 2023, and cotton consumption expectations have risen simultaneously. At this time, cotton prices are still at historically low valuation levels. Although new cotton production has been confirmed to increase, the supply has moved back. Many positive factors before the Spring Festival caused Zheng cotton to continue to rise to around 14,300 yuan/ton. The stocks of raw cotton and finished cotton yarn in downstream spinning mills are both low. The return of orders after the holiday has pushed the spinning mills to replenish their inventories or boosted cotton prices. In addition, traders and some downstream companies have prepared stocks in advance before the Spring Festival, which has made the market relatively hot, and cotton prices have started to rise again. Quotes. The recovery of orders after the Spring Festival was limited, lower than previously expected. At the same time, the U.S. non-agricultural data that was much higher than expected increased market concerns, causing a general decline in commodities and a decline in cotton prices.

Two recent events have had an important impact on cotton consumption. First, the sharp reduction in cotton production caused by floods in Pakistan did not bring about unexpected cotton imports, because under the influence of the domestic foreign exchange crisis, there was no foreign exchange payment for cotton imports, and a large amount of imported cotton was stranded at the port and unable to enter production, resulting in a decline in cotton consumption and textiles. Clothing exports have fallen sharply, and the domestic textile industry has been hit hard. Since the textile industry plays an important role in Pakistan’s national economy, the severe setbacks in the textile industry have caused the country’s economy to be extremely distressed. The government has canceled many supports for the textile industry, and the textile industry is in deep trouble. The other is the major earthquake in Turkey. Although half a month has passed since the earthquake occurred, the impact of the incident is amplifying. Turkey is an important force in the global textile industry, an important buyer of US cotton, and an important source of supply of European textiles. This earthquake may reduce the country’s cotton consumption by hundreds of thousands of tons, which will undoubtedly add new damage to global consumption. .

The reduction in cotton consumption in Pakistan and Turkey is not entirely a bad thing. The consumption gap will eventually be filled by other countries, which may also be an opportunity for China. At present, global cotton consumption is in the early stages of recovery, and the problem of inventory backlog in the industrial chain is being resolved. If clothing retail sales in Europe and the United States maintain a strong momentum, the situation will gradually improve in the next few months. Specific to cotton prices, previous surveys have shown that many domestic import companies are waiting for the market to fall below 80 cents to buy the bottom. International spot transactions tend to increase when the market falls below 85 cents, so there is limited room for cotton prices to fall.

Regarding the market outlook, cotton supply and demand are still relatively loose from an annual perspective, and cotton prices may maintain oscillations in the consumption verification that lasts for several months, and then enter a downward channel when the consumption situation gradually settles in April and May.

On the supply side, based on data from various institutions, the total national cotton production in 2022/2023 will increase by 11% year-on-year, and there is still the possibility of an increase in the future. Data from the national cotton trading market show that processing plants recovered quickly after the Spring Festival. As of February 14, Xinjiang’s cotton processing volume reached 5.4159 million tons, an increase of 180,700 tons year-on-year. At the current speed, it is expected that the processing work will be basically completed by mid-March. During the same period, Xinjiang’s cotton public inspection volume reached 5.0724 million tons, 26,200 tons behind the same period last year. It is expected that the public inspection work will be basically completed in early April. In recent months, as Brazilian cotton has successively arrived in Hong Kong, cotton imports have shown a seasonal increase. From September to December this cotton year, a total of 570,000 tons were imported, a year-on-year increase of 200,000 tons. However, due to the inversion of domestic and foreign cotton prices, my country’s external cotton procurement volume is low, and the volume arriving in Hong Kong will decrease in the future. Disregarding the State Reserve for the time being, the overall supply is higher than the previous year.

From the demand side, the domestic terminal textile and clothing market is divided into external demand market and domestic demand market. In terms of external demand, affected by expectations of overseas macroeconomic recession, demand for textiles and clothing has declined, and my country’s export orders have shrunk simultaneously. Customs data shows that from September to December last year, the cumulative export of textiles and clothing was US$102.757 billion, a year-on-year decrease of US$14.18 billion, or 12.1%. Due to the high base of last year’s export data and the overseas recession trend that is difficult to change in the short term, the cumulative value of textile and clothing exports in the later period is expected to maintain this decline. In terms of domestic demand, since the end of last year, all parts of the country have quickly returned to normal, the flow of people and goods has increased, and the economy has gradually picked up. In its “World Economic Outlook Report” released at the end of January, the World Monetary Fund predicted that China’s GDP growth rate in 2023 would be 5.3%. The author predicts that the total demand for cotton in 2022/2023 will decrease compared with the previous year. Ending stocks will accumulate, the inventory-to-consumption ratio will rise, and cotton prices will be under pressure.

After the Lantern Festival, orders from yarn mills and weaving mills have picked up, but the degree of recovery is limited and there is a lack of long-term orders. Enterprises have a wait-and-see attitude towards later demand. Even if the current spinning profit is still good, the willingness to restock is not strong. Until orders do not improve significantly, the price of cotton will be highly restricted.

Since the “Gold, Three, Silver and Four” have not yet arrived, the recovery of consumption is still unclear. In addition, data from the Cotton Textile Information Network shows that the cotton yarn inventory in spinning mills is about 17 days, which is still at a low level. The cotton yarn inventory in weaving mills is at the historical median of about 14 days, but the absolute value is low, which supports cotton prices. becauseTherefore, if there is no significant change in downstream demand, the cotton price trend will remain oscillating, and the direction cannot be determined until the consumption situation becomes clearer. The author believes that it is more likely that cotton prices will gradually weaken, and we will focus on the recovery of demand.

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Author: clsrich