Cotton stabilizes and rebounds, but upside space is limited

Special news from China Cotton Network: In recent days, Zheng cotton futures have continuously rebounded after hitting new lows, and ICE cotton has also seen a long-awaited continu…

Special news from China Cotton Network: In recent days, Zheng cotton futures have continuously rebounded after hitting new lows, and ICE cotton has also seen a long-awaited continuous daily limit. Short position closing has become the main force driving price increases. Zheng cotton futures reduced positions by more than 20,000 lots on Wednesday. Although the price approached 13,000 yuan/ton, there are still doubts whether this increase can be sustained in the later period. In the context of the U.S. raising interest rates by 75 basis points in November, the U.S. cotton harvest reaching its climax, and the lack of short-term improvement in downstream demand, cotton’s continuous rise lacks a supporting foundation, and the later rebound is likely to have twists and turns.

Exports of yarn and clothing dropped in September

Since June 21, the United States has fully implemented the Xinjiang cotton ban, and some large European companies are also following suit. At that time, the clothing export data in July and August did not show weakness, because most of the foreign trade orders were completed in advance, and Export data for September has declined significantly. In September 2022, my country’s textile and apparel exports were US$28.051 billion, a year-on-year decrease of 3.71% and a month-on-month decrease of 9.44%. Among them, the export value of textiles (including textile yarns, fabrics and products) was US$12.069 billion, a year-on-year decrease of 2.74%, and a month-on-month decrease of 3.38%; the export value of clothing (including clothing and clothing accessories) was US$15.982 billion, a year-on-year decrease of 4.43%. A month-on-month decrease of 13.54%.

According to common sense, the depreciation of the RMB is beneficial to exports. Data shows that the RMB has depreciated by 13% against the US dollar since April, and the euro has depreciated by 10% against the US dollar. However, domestic clothing retail sales in September declined year-on-year.

New cotton cost restricts futures price rise

This year, the purchase price of seed cotton in Xinjiang opened at a low level, generally at 5.1-5.6 yuan/kg. Most cotton farmers were unwilling to hand over cotton, or the settlement price was delayed. However, in the past month or so, cotton prices have continued to fall, and ginners have gradually lowered their purchase prices. Price, current spot sales profits are considerable, and companies have little interest in participating in futures hedging. If the futures price continues to rise, especially if it is close to 14,000 yuan/ton, the amount of hedging at the ginning mill will increase significantly.

Most commodity futures are still in the bottom-finding stage

In the past three months, most commodity futures have not shown an obvious upward trend. For example, U.S. corn, soybean, and wheat futures have all fallen slightly or consolidated; non-ferrous metals, represented by copper, are relatively sensitive to the macro economy, and now cotton Futures have similar concerns about demand and are also in the bottom-out stage of shock; energy futures, represented by crude oil, are also in a small range of 80-90 US dollars per barrel. The U.S. dollar index, which has a negative impact on commodity futures, has begun to rise again after last night’s interest rate hike, and the trend of commodity futures will be under pressure in the future.

Cotton’s recent rebound can basically be regarded as short covering after oversold. The fundamentals are still complicated. The global economy has not yet reached an inflection point in the interest rate hike cycle. Cotton consumption is still decreasing. There is no basic support for a large rising market in the short term.


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Author: clsrich