Weak global economic growth, cotton supply or surplus in the second half of the year

Release time:

2019-07-31

Since July, the price of US cotton has continued to fall, falling as low as 62.6 cents/pound on July 12, and then fluctuating around 63 cents/pound. Zheng Mian fell to the limit on July 9, and on July 10, Zheng Mian's main contract fell to the lowest near the previous low, and then oscillated up and down at 13000 yuan/ton.

Global production increase next year

The U.S. Department of Agriculture released its July global cotton production and demand forecast, increasing global opening stocks by 380000 tons and global production by 100000 tons, while lowering global usage by 210000 tonsExportvolume of 130000 tons. Global cotton supply is oversupplied in 2019/2020, with ending stocks expected to increase by 690000 tons. The increase in global cotton initial inventories was mainly due to a downward revision of cotton consumption in Bangladesh and mainland China.

The next year's increase in US cotton production by about 20% has played an important role in increasing global cotton production, and the US cotton planting situation has also confirmed its expectation of increasing production. As of the week of July 14, the growth progress of US cotton was slightly behind that of previous years, but the overall growth was good, with an excellent and good rate of 56%, higher than 41% in the same period last year. Last week's rainfall in Texas, the main producing area, and the recent sunny and warm weather are conducive to cotton growth, and the expected increase in US cotton production is gradually being realized.

Destocking is still slow

The average transaction price of the State Reserve Cotton has fallen, and the discounted 3128 price has fallen from 14640 yuan/ton on July 1 to 13824 yuan/ton on the 19th; although the transaction rate has dropped slightly due to the impact of market sentiment, it has basically remained at 90%. Up and down. Domestic supply is sufficient in 2018/2019 and inventories are expected to increase significantly year-on-year at the end of the year. As of early July, there were still 1.4 million tons of new cotton in southern Xinjiang that had not been sold. Xinjiang cotton that had not been sold by the end of August was facing repayment pressure, which would put pressure on cotton prices.

The latest figures released by the General Administration of Customs show that textile exports were not good in June. Exports of textile yarns, fabrics and products 10.31 billion US dollars in June, down 3.9 per cent from the same period last year, and the cumulative value of the year increased by 0.54 per cent; exports of clothing and clothing accessories 14.34 billion US dollars, down 0.93 per cent from the same period last year, and the cumulative value of the year decreased by 5.1 per cent from the same period last year. At present, textile enterprises have a small amount of replenishment, but the overall speed of inventory accumulated in each link in the early stage is still very slow, and a small improvement in downstream transactions is not enough to resist downward pressure on prices.

Global cotton production growth probability

At present, the probability of global cotton production growth is high, while global economic growth is weak, textile consumption is expected to decline, and US cotton will continue to be weak. It is estimated that China's industrial and commercial inventory will be about 4.75 million tons at the end of July, an increase of about 970000 tons over the same period. The total number of futures warehouse receipts plus forecasts is about 15400, or about 610000 tons of cotton, which also puts greater pressure on the disk. Therefore, Zheng Mian's future market will still maintain a weak pattern and may operate in the range of 12700-14000 yuan/ton in the short term.

It should be noted that if substantial progress can be made in Sino-US economic and trade negotiations, downstream sentiment can be well stabilized, and orders will also increase. In addition, the national cotton storage and Xinjiang encountered adverse weather will have a significant impact on the cotton balance sheet.

(Source: Futures Daily)

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