Cotton Price In The Current Situation Or Difficult To Get Out Of Trouble

Recently, the international market has been making a lot of noise. In addition to the Suez canal blocking, the West boycotted Xinjiang cotton. The Suez canal port blocking is an accident, but the Western boycott of Xinjiang cotton is a deliberate event.

The outbreak point of the incident came from the news that H & M boycotted Xinjiang cotton on March 24. Subsequently, many large foreign factories responded in succession, and the incident finally escalated to a very serious level. So what was the whole story of the boycott of Xinjiang cotton? Why has it become so serious?

In fact, the matter of Xinjiang cotton should start from Trump's reign. In February 2020, trump began to hype the Xinjiang issue. In September, he asked CBP of the United States Customs and border protection to ban the import of five categories of products from Xinjiang, including cotton and tomatoes. By January this year, CBP had detained 43 shipments worth more than $2 million containing Xinjiang products. In addition, he also extended the ban to the entire supply chain, that is, not only American goods cannot contain Xinjiang products, but also upstream and downstream companies and other sales markets entering the United States for sale cannot contain Xinjiang products.

Let's look at which companies are affected. Patagonia, marks and Spencer, Nike and H & M are all enterprises using Xinjiang cotton. Because of the ban of the United States, they have to declare that they will not use Xinjiang cotton any more. In fact, in addition to cotton, Heinz and other foreign brands no longer use Xinjiang tomatoes for ketchup. In addition, the above companies all belong to BCI. The headquarters of BCI said that there was forced labor, but BCI China did not find forced labor, but BCI headquarters ignored this fact. Since BCI no longer certifies Xinjiang cotton, the members of BCI also abide by the agreement not to use Xinjiang cotton any more. Among them, Adidas was the last of several major international factories that announced that they would not use Xinjiang cotton. Nike also banned the employment of Uyghur employees. H & M said that although there was no evidence of forced labor, it decided to suspend cooperation with relevant suppliers.

After 2017, China has become the absolute center in the trade structure of the textile industry. In the past, we were stuck with technology or raw materials, such as chips and iron ore, and few of them went to the downstream for consumption. However, this time, Europe and the United States did the opposite, forcing upstream suppliers to change through the strong consumer brand, which disrupted China's stable industrial structure.

At present, there are many interpretations of Xinjiang cotton event in the market, but few views on the future cotton price, because the event itself has great uncertainty, and the future direction has greater risk. But in the current environment, we have to judge the future trend of cotton prices.

First of all, let's look at the supply and demand situation at the current stage. China's cotton is divided into two parts, Xinjiang cotton and Lianghe River Basin local cotton. The gap is adjusted through imported cotton. At present, China's annual output is 6.314 million tons, and Xinjiang's cotton processing is 5.7546 million tons. Because it is the late stage of processing, the mainland cotton is about 500000 tons, the annual import volume is 2.4 million tons, and the early import is 1.66 million tons. If China continues to implement the first stage agreement, the goal of 2.4 million tons will not be a big problem, whether it is USDA's inventory consumption ratio or BCO Compared with the 17 / 18 years, the inventory consumption ratio is not very low. Therefore, from the valuation of the balance sheet of supply and demand, the prices of both Zheng cotton and American cotton are at a historical low and medium level.

However, the above balance sheet of supply and demand is based on the stable rise of downstream consumption. Therefore, if the Xinjiang cotton incident continues to ferment (at present, the current order has not been affected, but the continuity of future orders cannot be guaranteed), the current structure of the balance sheet of supply and demand will be changed. Under the influence of the current patriotic sentiment, domestic consumption may increase significantly to offset the impact of external events, regardless of the sustainability of consumption, overseas influence may also be reflected in the later stage. When we compare the price trend of cotton in the stage of trade friction in China in 2019, we can see that the cotton price index fell by 34.5% at that time, while the current maximum decline is 15.9%, and the decline rate is less than half. Therefore, it is not ruled out that history will repeat itself in the future. The previous time node was the first phase of Sino US trade agreement, and it is uncertain when the node of this event will appear. There may be a rebound in short-term cotton prices after oversold, but the smoothness and height of rebound flow are relatively limited, and the medium-term price trend can not get rid of the fact that it is still weak.

Important statement: the content of this article is for study and exchange only and does not constitute any investment suggestion.

(source: Nanhua futures)