Why does the internal and external cotton market appear "ice and fire two days"


Release time:

2018-01-16

The domestic and foreign cotton markets in December 2017 can be described as "two days of ice and fire". After the main U.S. cotton contract in March stood firm at the 70 cents/pound mark, it made great strides all the way, with the sword pointing to the previous high of 80 cents/pound. However, Zheng Mian's main force fell from the 15500 yuan/ton line, once breaking the 15,000 mark. Recently, it oscillated within a narrow range and was in a dilemma. U.S. Cotton Export Data Beautiful According to statistics, as of December 28, 2017, the U.S. has signed a total of 2.552 million tons of cotton for 2017/2018, accounting for 78% of the annual export volume, higher than the five-year average of 11%, high

The domestic and foreign cotton markets in December 2017 can be described as "two days of ice and fire". After the main U.S. cotton contract in March stood firm at the 70 cents/pound mark, it made great strides all the way, with the sword pointing to the previous high of 80 cents/pound. However, Zheng Mian's main force fell from the 15500 yuan/ton line, once breaking the 15,000 mark. Recently, it oscillated within a narrow range and was in a dilemma.
 
US cotton export data beautiful
 
According to statistics, as of December 28, 2017, the United States has signed a total of 2.552 million tons of cotton in 2017/2018, accounting for 78% of the annual export volume, higher than the five-year average of 11%, higher than last year's 17%, which is an important reason for the continued rebound in US cotton prices. Although the export sales of US cotton have deteriorated in the past two weeks, the time of this year is less than half, and the contract for US cotton exports has already exceeded half, especially with the arrival of the peak sales season, the overall sales data is very strong. At the same time, the loosening of China's cotton quota policy will also bring continuous benefits to the export of US cotton, so the price correction of US cotton is limited. Recently, some domestic market participants believe that a large part of the rise in U.S. cotton is due to unpriced positions. Unfixed On-Call Sales (selling a hedged position to be closed) is part of a commercial position and can be understood as a hedging position based on a basis trade. The participant is the cotton merchant, the call order is usually issued by the factory (or other buyer), in principle, after the buyer issues a point order, the cotton merchant (I. e., the seller) closes the position to complete the hedging task, to obtain the basis spread income. Of course, there may be differences in the actual situation, there may be a lag in closing positions or leaving some exposure, etc. U.S. cotton export contract data is strong, hedging short positions closed futures positions naturally increased, the disk confirms the spot market sales boom.
 
Slow domestic spot sales
 
At present, it should be the peak season for textile enterprises to replenish their warehouses, but we see that their replenishment efforts are weak. On the one hand, the state reserve stock in the early stage was too large, the new cotton was concentrated on the market, and the resources were sufficient. On the other hand, the spinning enterprises appeared to be leisurely. Second, the new year's reserve cotton rotation will begin in March. For the high price of new cotton, the downstream is not "cold". The price of standard-grade machine-picked cotton in Xinjiang also dropped from above 15500 yuan/ton to 15000 yuan/ton. At present, the spot price is down to the cost of the ginning plant, whether the ginning plant will lose money or sell at a fair price is also a question. It is estimated that the cotton consumption this year will be 8.5 million tons, with an average monthly demand of 700000 tons. At the same time, the price of inner yarn is lower than that of outer yarn again, and the subsequent domestic consumption is not bad. With the passage of time, as long as the ginning plant to withstand the pressure, the market will usher in the dawn. In the actual production of textile enterprises, the reserve cotton must be used with a certain proportion of new cotton, so although the replenishment is late, it will eventually be fulfilled.
 
The price difference between internal and external cotton shrinks to a normal low level.
 
As of January 8, Zheng Mian had 4086 warehouse receipts generated and 1143 were forecast. Compared with 5288 warehouse receipts and 1369 forecast at the peak last year, although 1428 fewer, the delivery volume was still relatively large. The generation of a large number of warehouse receipts is certainly a factor in the convenience of Xinjiang warehouse registration and delivery, but more is the increase in cotton production, spot sales are not smooth, making a large number of resources into the futures market. How to solve the problem of warehouse receipts in the future should be the focus of the market. Recently, the price difference between domestic and foreign cotton has dropped rapidly from a high level, from around 3000 yuan/ton at the peak to less than 1000 yuan/ton at present. The price difference between domestic and foreign cotton is 1500-2000 yuan/ton, which is generally accepted in China. Too high or too low will lead to intensified competition in the cotton yarn market. The current price difference between domestic and foreign cotton is conducive to the recovery of domestic textile competitiveness. If the low price difference is maintained for a long time, coupled with the release of cheaper reserve cotton in the later period, this will help boost domestic cotton consumption and benefit cotton prices. From a fundamental point of view, the situation of strong U.S. cotton and weak Zheng cotton can still be maintained; from a statistical point of view, the price difference between the two has fallen to a low level, and the cross-market arbitrage operation of selling outside and buying inside can be considered.