China-Cotton Trade Will Rise Again, Where Will Zheng Cotton Go?

Recently, trade disputes between China and the US have started to spread again and again, affecting the entire financial market and becoming an important factor in guiding cotton prices in the short term.

In May 6th, US President Trump tweet could impose a 25% tariff on all products in China. The whole market was in an uproar, and both domestic and foreign cotton prices dropped significantly. The CF1909 contract once fell to 15205 yuan / ton, a new low since 2019, and the CF1905 contract returned to below 15000 yuan / tonne pass. Pessimism is flooding the market.

In May 7th, a piece of news broke the calm and quiet market. At the invitation of the US trade representative, Vice Premier Liu He of the Chinese State Council would go to the United States to discuss with the US representatives on May 9th and 10. The market sentiment was relieved and the price of Zheng cotton rose rapidly. The CF1909 contract stood at 15500 yuan / ton, closing at 15575 yuan / ton.

In view of Sino US trade, the individual thinks that more is the influence of the mood, and in view of the real demand of cotton itself, the impact of the trade friction escalation is limited, and the latter market will return to the fundamentals.

Active auction cotton reserves support for price formation

In May 7th, 10 thousand tons of cotton were listed on the Central Cotton store, with a turnover of 10 thousand tons, with a turnover rate of 100%. The average price was 14614 yuan / ton, down 59 yuan / ton compared with the previous trading day, and the price of 3128 yuan was 16041 yuan / ton, down 44 yuan / ton compared with the previous trading day.

Since the 5, there has been a continuous turnover of 100% on 3 consecutive trading days. Although the average price has declined, it still does not change the enthusiasm of the downstream companies.

Inventory remains high to be further digested.

For three consecutive years, the reserve cotton has been put in storage. At present, the stock of reserve cotton has returned to less than 3 million tons, plus the additional 1 million tons this year, the stock of reserve cotton will be further reduced.

In the future, the gap of domestic cotton will be met through imports. We can estimate that this year China's cotton output is 6 million tons, the tariff quota of 894 thousand tons per year, plus the 800 thousand tons sliding quota tax granted in April. China's imports of cotton will be close to 2 million tons this year, and the market supply will be relatively abundant in the short term.

Weak downstream consumption to maintain weakness

Downstream cotton yarn market is still weak, turnover is generally, new orders are not enough, 32S combs price basically maintained near 23000 yuan / ton, import yarn market prices remain weak shocks.

On the whole, Sino US trade negotiations still guide the entire financial market in the short term, affecting the price range of Zheng cotton. But wait for the mood to ease, the price will return to the fundamentals, enter the May time window period, plus the cotton price period upside down, the drop space is limited, the price rise in the later stage can still be expected, long-term investors can consider the 09 contract layout.