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SunSirs: Chinese Cotton Market Surged and then Fell back in May, Entering the Consolidation Period at the End of that Month

June 02 2021 09:14:51     SunSirs (Linda)

1. Price Quotes

In May, cotton fluctuated downward, the market price at the beginning of the month was 15,897 yuan/ton, and the price at the end of the month was 15,760 yuan/ton, down 0.86% and up 33.38% year-on-year.

2. Market analysis

Domestic: At the beginning of this month, news of additional quota issuance came to fruition on the evening of April 30. This time, the amount of cotton import sliding tax quota issued is 700,000 tons, all of which are non-state trade quotas. As soon as this news came out, it was helpful for textile and apparel foreign trade companies to receive orders, reduce raw material procurement costs, and improve product competitiveness. The cotton market rose accordingly. By the middle of the month, the executive meeting of the State Council required to "effectively respond to the excessively rapid rise in commodity prices and its collateral effects." Exchanges have implemented a number of measures such as increasing the margin ratio for the trading of multiple futures products to ensure the smooth operation of the market and domestic cotton prices. The commodity market rose and fell, and the market remained weak until the end of the month.

China imported 230,000 tons of cotton in April, an increase of 92% year-on-year, and the cumulative import in 20/21 was 2.17 million tons, an increase of 90% year-on-year. At the end of April, the country’s total cotton turnover inventory was about 3.2297 million tons, a month-on-month decrease of 446,300 tons, a slight increase from the previous month, and lower than the same period last year of 21,300 tons.

International: U.S. inflation data rose sharply to a 12-year high. The combination of the Palestine-Israel conflict led to a drop in oil prices and improved weather in Texas, which dragged down international cotton prices significantly. 7th International Cotton Price Index (SM) 98.76 US cents/lb; 28th International Cotton Price Index (SM) 94.84 US cents/lb, down 3.92 US cents/lb; 7th International Cotton Price Index (M) 94.98 US cents/lb Pound, the 28th International Cotton Price Index (M) was 91.47 cents/lb, down 3.51 cents/lb. ICAC's May forecast of global production and demand is bullish. In 20/21, global consumption is 25 million tons, output is expected to be 24.6 million tons, and ending stocks are 22.14 million tons.

Futures: On May 6, the settlement price of Zhengzhou Cotton's main contract 2109 was 15,800 yuan/ton, and on the 31st, the settlement price of the main contract was 15,430 yuan/ton, down 370 yuan/ton.

3. Downstream industry chain

Recently, the cotton futures market has fallen, and the market’s wait-and-see sentiment has increased. At present, cotton yarn companies are still in a low inventory state and are willing to stand up for prices. The summer cotton consumption is off-season. Traders and ginners have increased their willingness to ship goods, imported cotton yarns have increased, and orders from downstream textile companies have been average. The market for grey fabrics is lighter than the previous period. Orders are somewhat 'green and yellow'. Cotton spinning mills lack large orders. Stable orders, and pay attention to the order situation of textile enterprises in the later period. According to statistics, as of May 28, the yarn inventory of textile enterprises in major regions of the country was 10.2 days, a decrease of 0.6 days from last week and a decrease of 5.6% from the previous week. The data shows that China's cotton textile industry prosperity index was 49.20 in April, which was lower than that in March. The raw material inventory index in April was 48.67, down 1.52 from the March index.

With the recovery of the epidemic situation and orders, it can support the price of cotton to go out of shocks. The early cotton production reduction expectations have not been reflected in the cotton futures market. In the short term, cotton prices may remain weak and volatile despite the lack of positive support. In the long run, Europe and the United States Daily orders are likely to overflow again in the second and third quarters, and cotton may form a wave of good news.

If you have any questions, please feel free to contact SunSirs with support@sunsirs.com.

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