Recently, Zheng Cotton’s main contract has broken through the previous high. Some downstream factories have started to take holidays. In order to reduce the risk of raw material costs, yarn mills are less willing to purchase and goods delivery is slow. As the Spring Festival approaches, replenishment companies have entered the final stage of purchasing goods, and new orders are limited.
1. Market review
On the international front, U.S. cotton prices rose sharply last week, exceeding 85 cents, setting a new stage high again. This was mainly affected by macro factors such as the Federal Reserve’s monetary easing expectations and the stock market. However, on Friday, affected by the sharp decline in weekly export data, prices followed. It has fallen sharply, and we still need to continue to pay attention to the situation of US cotton exports in the future.
Recent ICE cotton main contract market trends
In mid-January, Zheng Cotton’s main contract consolidated around 15,500 for a period of time. On January 18, Zheng Mian’s price surged, taking this to a new level as a whole. However, cotton prices did not further extend their gains in late January, but began to fluctuate on a new platform, with the trading axis moving up from 15,500 in mid-January to 16,000.
Entering January, the improvement in orders from textile companies has led to a round of corporate replenishment. Although the Spring Festival holiday is approaching and the replenishment is basically completed, companies are optimistic about the market outlook, and Zheng Cotton has shown strong shocks. However, under the influence of these bullish factors, the increase in cotton prices is still relatively limited. Zheng Mian continues to fluctuate near the Wanliu mark, indicating that the game between the long and short parties at this position is relatively intense. Judging from the cost of Xinjiang cotton, the current futures price is close to the cost of new cotton in southern Xinjiang. Some companies with low acquisition and processing costs already have room for hedging. If prices continue to rise, Zheng Cotton will undoubtedly face greater hedging pressure. Therefore, at the key pressure level of Wanliu, Zheng Cotton’s main contract fluctuated repeatedly.
As the Chinese New Year approaches, the operating rate of downstream textile enterprises is stable and declining. Most downstream cotton spinning companies have normal holidays this year, and a few companies with tight order delivery times will have their holidays shortened appropriately. Generally speaking, the replenishment of raw materials by textile companies and weaving companies has basically been completed. There are not many companies that continue to replenish their inventories in large quantities. They are basically cautious and just need to replenish their inventories. As consumption gradually weakens, it is unlikely that cotton prices will continue to rise sharply. On January 31, Zheng Cotton’s main contract closed at 16,085 yuan/ton, down 15 yuan/ton from the previous day.
Recent market trends of Zheng cotton 2405 main contract
Companies begin to take holidays one after another
As the new year is approaching, many textile companies have taken holidays one after another, and migrant workers have also begun to return to their hometowns. The upstream and downstream industries have basically entered the end-of-year finishing work. According to cotton trading companies in some areas, the number of cotton companies and middlemen who have inspected goods and placed orders since this week has been significantly reduced compared with mid-January. This is because a large proportion of small and medium-sized cotton textile mills have entered the pre-holiday holiday, and raw material inquiries, Procurement gradually stopped (including port bonded cotton, cargo, etc.). Some cotton companies have also begun to reduce pending orders and quotations, waiting for the market to start after the year. At present, the overall market is still in a weak position, the dilemma of insufficient demand in the industrial chain has not yet been overcome, and the continuity of production orders is difficult to guarantee.
Generally speaking, there is often a small peak season of demand before the Spring Festival. The market also reflects that some foreign demand orders have been placed some time ago, and weaving mills’ demand for cotton procurement is improving. After a period of continuous replenishment, the inventory of raw materials in weaving mills has reached a high level. Cotton demand is weakening before the Spring Festival, but overall it is still acceptable. The market’s biggest worry about future market conditions is still the sustainability of demand. After all, now is the peak period for new cotton supply, and cotton supply is sufficient. Recently, imported cotton has also been arriving in Hong Kong in large quantities. Overall, the supply of cotton raw materials is abundant.
Is it possible for cotton prices to rise after the holiday?
In January, due to the intensive stocking in the downstream of the textile market, cotton yarn inventories of textile companies were significantly reduced, and output profits improved, which may provide potential space for subsequent cotton consumption. According to research by relevant institutions, high-count yarn has been selling well since January, and some textile companies have ordered orders until March. Therefore, before the arrival of the “Golden Three” peak demand season, most industry players have positive expectations for consumption in the downstream market. It is expected that cotton market demand will still increase after the Spring Festival, and domestic cotton prices may continue to be strong by then. In addition, the high-cost cotton of some ginning companies is still at a floating loss and is temporarily unable to flow into the market. This will also provide support to the domestic cotton market in the short term.