The Cotton Market Is Expected To Continue To Be Weak Due To The Stagnation Of Inflation In China

Peripheral market: The downward trend of inflation in the United States has stagnated internationally. Although the probability of interest rate reduction increased significantly in December, the inflationary pressure brought by the tariff increase next year will make the road of interest rate reduction ambiguous. The two major domestic meetings set the tone that fiscal policy will be more active and monetary policy will be moderately loose next year, and the RRR and interest rate will be cut at the right time, which is basically in line with expectations, but the specific measures still need to be clarified.

Industry level: The international USDA report did not increase China's output, and the overall output increase was greater than consumption, with a direction of bias. On the demand side, the contracted volume of American cotton has a limited growth in the process of price decline again, and we will wait and see the subsequent signing. The overall supply and demand easing situation is difficult to reverse, and the fund increase is not motivated by many factors. There is still uncertainty about the specific strength of policy measures in the domestic market, which is difficult to boost temporarily because of the obvious increase in supply pressure, the weakening of confidence in the demand side market, and the fact that the demand of enterprises for de stocking and realization at the end of the year increases downward pressure on prices. The market is expected to continue to operate weakly. 　

Market price review

Zheng Mian continued to fall last week, with the main force hitting nearly two-and-a-half month lows twice on Monday and Friday, falling to 13635 yuan/ton at the lowest. In the week, the loose expectations on the supply side of the cotton market were strengthened, and the decline on the demand side was slightly exacerbated with the deepening of the off-season. The policy keynote of the two major conferences was in line with expectations, and the market was not boosted. The main force of the external market fell first and then rose, and then fell again later in the week, with the weekly low falling to 69.05 cents/pound.

The adjustment direction of the latest monthly report of USDA within the week is empty; The US CPI in November was in line with expectations, and the probability of interest rate cut in December increased; As well as the continuous decline in the contracted volume of American cotton and other factors that have a short-term impact on the market. The overall difference between internal and external cotton prices expanded. The price of cotton yarn at home and abroad continued to fall slightly, lower than the cotton price, and the negative price difference narrowed slightly. The price of alternative raw materials fell slightly.

1. Domestic market: Zheng Mian goes down twice; sales pressure of cotton enterprises continues to increase

Zheng Mian: Macro and supply and demand pressure hit the bottom twice

Last Monday, Zheng Mian broke down and ended the previous horizontal consolidation trend, with both trading volume and position volume increasing significantly. With the recent warming of Sino US trade issues and the gradual intensification of the contradiction between supply and demand easing, funds took the opportunity to significantly increase their holdings of short orders after the switch of main forces, creating pressure on the market, and the lowest price of main forces dropped to 13690 yuan/ton. In the following days, cotton prices continued to move downward, and the 60 day moving average was significantly suppressed. With the acquisition and processing coming to an end, the processing volume of Xinjiang cotton exceeded 5 million tons within the week. At the same time, our production survey continued to raise the total cotton output of Xinjiang this year. At the end of the Central Economic Work Conference on Friday, the meeting continued the major judgment and policy orientation of the Political Bureau meeting at the beginning of the week, but emphasized "more active and promising" in the presentation, the tone was in line with market expectations, the role of boosting cotton prices was limited, the market was still deeply trapped in the contradiction between supply and demand and the expectation of levying tariffs, and cotton prices reached a new low of 13635 yuan/ton. The average settlement price of Zheng Mian's main contract in the week was 13761 yuan/ton, down 167 yuan/ton or 1.2% from last week.

Trading volume and positions increased last week. 2.115 million deals were clinched in the week, an increase of 389000 over the previous week; The position volume was 803000 hands, converted into 4015000 tons, an increase of 45000 hands. As of this Friday, the total number of registered warehouse receipts plus effective forecasts was 3170, equivalent to 127000 tons, 927 more than that of last Friday.

Spot goods: supply pressure to the basis for further reduction, processing volume exceeding 5 million tons

The decline of Zheng Mian deepened last week, the pressure on lint market sales continued to increase, and the actual transaction price fell back. The cotton price continued to fall in the week, the textile enterprises' point price continued to fall, and the replenishment progress slowed down. In the late week, with the cotton price reaching a lower level, some enterprises also slightly reduced the basis by about 50 yuan/ton. Xinjiang machine picked cotton Shuang29 contains less than 3% impurities. The contract sales basis is 600-700 yuan/ton, and the basis of hand picked cotton resources of the same grade is 650-750 yuan/ton. The weekly average price of China's cotton price index this week was 15106 yuan/ton, down 145 yuan/ton from last week, or 1.0%.

Last week, the purchase of Xinjiang seed cotton came to an end. Only Aksu and Kashi regions still had sporadic purchase of seed cotton, and the purchase price fluctuated with indicators such as inclusion and recovery. Affected by the snowfall, the daily processing volume has dropped to about 52000 tons, but the cumulative processing volume has exceeded 5 million tons, and the cumulative inspection volume has exceeded 4.5 million tons. As of December 12, the cumulative processing volume of lint in Xinjiang was 5.0899 million tons, with a year-on-year increase of 18.93%. According to the estimation of Xinjiang's total output of 6.412 million tons in our latest production survey, the current processing progress is 79.38%, 2.87 percentage points faster than the same period last year.

2. International market: short-term long short staggered cotton prices are weak as a whole

At the beginning of last week, the net number of index funds was at a low level in recent years, which was difficult to support the market. ICE futures continued its downward trend last week; Subsequently, the USDA's latest monthly supply and demand report increased the output of this year by more than consumption, and the ending inventory increased, which put some pressure on the market. The main force once again went down. However, the year-on-year increase of US CPI in the middle and late weeks was larger than that of last month, which was in line with expectations. The market believed that the probability of the Federal Reserve cutting interest rates in December to prevent the labor market from cooling too fast was increased, which formed a temporary support for cotton prices. The following weekly contract data of US cotton continued to decrease, forming a bias effect again, and the center of gravity of cotton prices moved down again. The lowest point of cotton price in the whole week happened on Wednesday when the overall market rebounded, which was 69.05 cents/pound. The weekly average settlement price of the main contract of ICE cotton futures in the week was 69.79 cents/pound, down 1.25 cents/pound, or 1.8%, from last week. During the same period, the decline of international spot cotton price was slightly greater than that of futures, and also greater than that of domestic spot cotton. The weekly average price difference between domestic and foreign cotton was expanded to 920 yuan/ton.

In terms of the operation of major countries, the United States had contracted 34700 tons of upland cotton in the week ended December 5, a 10% decrease from the previous month; 31162 tons were shipped, a decrease of 13%. Among them, China signed a net contract of - 952 tons, with a 78% increase in shipments. Although there has been a small amount of rainfall in the cotton area of the United States recently, it has not brought obvious adverse effects on the harvesting operation, and the processing of new cotton is progressing smoothly. The picking progress of new cotton in the United States has exceeded 80%, which has remained at a relatively fast level in recent years. The number of new flowers on the market in India during the week decreased from the peak in early December, but still higher than the daily number of flowers on the market in the same period of the past two years. Influenced by the weak international cotton price and the continuous listing of new cotton, S-6 new cotton fell under pressure, with the quotation of 80.65 cents/pound, which is at the middle level in recent three years. The turnover in Pakistan cotton market is limited. Some small mills purchase a moderate amount of cotton, while large mills have sufficient stocks to purchase more imported cotton. Ginning mills are more active in selling low-grade cotton, but they are still reluctant to sell high-grade cotton. Cotton prices remained firm at 76 cents per pound, flat month on month.