Foreign cotton fell to the limit yesterday and rose to the limit today. Will cotton prices rebound after a sharp drop?

Domestic and foreign cotton prices fell sharply, and US ICE cotton futures hit the daily limit

Last week was the most devastating week for the cotton futures circle.
Just last Friday, domestic and foreign cotton prices resonated, market sentiment was pessimistic, the main Zheng cotton contract was close to the limit down in the morning, and the far-month contract hit the limit down. As of the close, cotton fell by more than 6%.

What exactly caused the sharp drop in domestic and foreign cotton prices? On the one hand, there is the impact of the general decline in commodities caused by the accelerated pace of interest rate hikes by the Federal Reserve, and on the other hand, there is also the impact of cotton's own fundamentals. Since mid-to-late May, the bullish factors supporting the rise of US cotton have begun to weaken. The drought in the main producing area of ​​Texas has been greatly alleviated, and the volume of unpriced sales contracts for US cotton in July has also dropped sharply. After the one-step-by-one sharp reduction, there is basically no room for US cotton production to fall. The above factors have caused the factors that previously supported the strength of US cotton to begin to weaken. As the pace of interest rate hikes by the Federal Reserve accelerates, commodities weaken, and US cotton prices begin to fall. Without the support of the foreign market, Zheng cotton has returned to the fundamentals of weak domestic demand.

On June 28, U.S. ICE cotton futures hit the daily limit, up 5.32% to 99.05 cents per pound.

Zhengzhou Cotton main contract bottomed out and rebounded, closing above the 17,500 mark

The weak supply and demand drag down the cotton price. At present, the domestic upstream inventory is high, the downstream demand is poor, the loan repayment time is approaching, the price-supporting ability is weak, Zheng cotton is under pressure, and the internal and external resonances have intensified the decline of Zheng cotton. At present, the negative feedback of weak macro-expectation sentiment and weak industry reality sentiment is superimposed. On Tuesday, the main contract of Zheng cotton opened sharply lower, but the contract turned from decline to rise during the session, closing at 17,615 yuan/ton, with a daily increase of 1.94%. Recently, commodities have been dragged down by external macroeconomic risks, but after continuous declines, market sentiment has been vented, and most domestic commodities have rebounded.

Domestically, the trading atmosphere in the downstream market is still weak. The transaction situation in the spot market of pure cotton yarn has gradually become clear, but there are still many textile companies that do not quote prices and implement one-order-one-negotiation. The transaction volume of cotton yarn is still small, and the price has dropped by about 1,000 yuan/ton compared with the first half of last week. The market is still in a wait-and-see mood. The market for pure cotton grey cloth continues to be sluggish, and prices continue to fall, but downstream transactions are still scarce. Weaving mills in Lanxi, Zhejiang Province, reflected that demand has continued to be insufficient recently, downstream customers are cautious and wait-and-see, weaving mills have accumulated inventory, and subsequent new orders are in short supply. At present, the average inventory of weaving mills in Lanxi is about 2 months.
Regarding the logic of market operation, Ruida Futures said that from the perspective of the domestic market, the weather in the production area this year is good, the new season cotton grows faster than the same period last year, and the damage is relatively light. As of the end of May, the commercial cotton inventory was 4.1628 million tons, and the commercial inventory is still at a relatively high level in the past five years. The domestic cotton supply is still loose, the port cotton inventory remains at a medium-low level, and the domestic and foreign cotton price difference is obviously inverted. In terms of demand, the industrial inventory of textile enterprises remains at a low level in the past three years. Downstream textile enterprises have no concentrated order support, and the finished product inventory pressure is relatively large. Enterprises remain cautious and wait-and-see about the purchase of raw materials. In view of the fact that the supply and demand of the domestic cotton market are still weak, and foreign cotton has fallen sharply, the short-term cotton price is still difficult to say. However, the cotton ginning mills still have a large high-cost supply, and the cotton price will usher in the possibility of technical repair after a sharp drop.

Policy factors remain the focus of market outlook

At present, under the industry cycle of global textile and clothing consumption peaking and falling, the domestic cotton textile industry chain has been hit by the ban on Xinjiang cotton. The national reserve regulation measures may be exerted in the short and medium term to support the industry chain. On the one hand, in order to protect the planting profits of cotton farmers and stabilize the price of seed cotton, the market support method can be adopted during the October purchase period to store lint cotton and stabilize the cotton price and the mentality of cotton ginning factories. On the other hand, in order to protect downstream orders, the foreign cotton stored in the previous period of high domestic and foreign price difference can be sold to meet the demand of non-Xinjiang cotton in the textile industry. In addition, the national reserve is at a low inventory point, and the rotation of Xinjiang cotton under the situation of inverted domestic and foreign price difference can economically meet the demand for replenishment. For the future market, there is a possibility of oversold rebound after the market has fallen sharply, but the fundamental demand is weak, and the bottoming policy expected by the market has not been seen. There is a lack of factors for rebounding. It is expected that Zheng cotton will continue to explore the bottom. After the mood is digested, the market will stop falling and rebound. For the domestic cotton market, the probability of national reserve cotton regulation is increasing. Under the long-term bearish trend, the impact of national reserve regulation on the market should not be ignored, and the price rhythm should be grasped.

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