On November 14, the State Administration of Grain and Material Reserves officially announced that it will rotate in some Xinjiang cotton from December 2 to March 31, 2020. As time goes by, how cotton prices will go has become a common concern in the market. Below, the author will talk about some of his own understanding based on the views of the industry.
First, the rotation of reserve cotton is a positive factor, there is no doubt about it. According to the latest data from the National Cotton Market Monitoring System, my country’s total cotton output in 2019 is expected to be 5.84 million tons, a year-on-year decrease of 4.3%. The gap between supply and demand is more than 2.5 million tons. Under this situation, the rotation of cotton reserves will be beneficial to the market from weak to strong.
Second, the amount of cotton reserves arriving in 2019 is 500,000 tons, so the market should not be too optimistic. The announcement shows that the rotation time is the national legal working day from December 2, 2019 to March 31, 2020. The quantity is 500,000 tons, and about 7,000 tons are listed for bidding every day. For the purpose of stabilizing the market, the quantity of 500,000 tons will not have a significant impact on the domestic market.
Third, the market will be more favorable in 2019/20, and the industry needs to strengthen its confidence. At present, cotton prices have reached rock bottom, and there is limited room for continued decline. At present, the main contract of Zheng cotton is oscillating in a low range at 13,000 yuan/ton, while Xinjiang cotton point price sales have improved significantly, and cotton textile mills and middlemen are significantly more motivated to replenish their stocks than before mid-November. According to statistics from a trading platform, the recent price point trading volume has reached a new high. The 2019/20 lint cotton with low basis is favored by mainland textile companies and investors. The fundamental reason is that the low price is attractive.
Fourthly, the rotation of cotton reserves is a general trend, and the potential supply of cotton will decrease this year. According to the USDA monthly supply and demand report (November 2019), global cotton production in 2019/20 is revised down, ending stocks are revised down, and global trade volume is revised up. Global production is lowered by nearly 3 million bales, mainly in the United States, Pakistan, India and China. Türkiye and Turkmenistan saw slight decreases. Nationally, cotton ending stocks in 2019/20 are expected to be reduced by 3 million bales, and the gap between supply and demand will increase, bringing the possibility of cotton prices rising.
Fifth, Sino-US negotiations are uncertain, but if an agreement is reached, it will bring benefits to cotton. According to market forecasts, if the Sino-US economic and trade negotiations finally reach a bilateral agreement, China’s increase in imports of US cotton will cause ICE futures to rise by 5-15 cents, Zheng cotton will also rise to 13,500-14,500 yuan/ton, and Xinjiang cotton will rise to 500,000-1 million yuan/ton. All tons of remaining inventory have been sold out, and textile companies’ cotton inventories are expected to increase to 3-6 months. The cotton, cotton yarn, textile and apparel markets may usher in a full recovery.
To sum up, the rotation of cotton reserves may be a good market opportunity. Although the current market response is dull, the east wind has arrived, and the spring of cotton may not be far away. </p
