Cotton storage close to the end of supply for more than short-term pressure

Cotton storage and storage increased the bottom of cotton prices, ensuring the future market supply while stabilizing the cotton planting area and changing the supply and demand structure of the cotton market.

Short-term pressure on cotton prices

Recently, Zheng Cotton's CF1209 contract fell sharply to around 21200, and the pace of decline slowed markedly, maintaining consolidation at 21360. The author believes that the supporting role of the new storage plan for cotton prices has been digested by the market. Cotton import quotas and throwing storage policies will exert greater pressure on cotton prices. Cotton consumption will continue to be weak for some time to come and Zheng cotton will continue to decline. Explore for support.

Cotton collection is nearing completion

The 2011 cotton collection and storage work is about to end. Storage and storage increased the bottom of the cotton price, ensured the future market supply while stabilizing the cotton planting area, and changed the supply and demand structure of the cotton market. At present, most of the cotton above level 4 has been collected and stored, avoiding further declines in cotton prices. As of March 23, the total amount of temporary cotton storage in 2011 was 3.01 million tons, accounting for 41% of the annual cotton production of 7.26 million tons. In addition to the 1 million tons of cotton imported previously, the country has already seized 4 million tons of cotton resources and strengthened its control over cotton prices. However, the temporary purchase and storage of cotton merely reserves too much cotton on the market and does not reduce the total supply of cotton. In the absence of a clear improvement in demand, short-term supply exceeds demand and upward pressure on cotton prices.

Increased pressure on wheel storage

At present, the domestic cotton storage capacity is already approaching saturation. If it continues to store and store in 2012, the market will have to face greater pressure from storage in April-July. If the country chooses to throw a reserve, the reserve price should be RMB 19,800/tonne plus storage and capital interest. The estimate should be above 22,000 yuan/ton, and the current spot price is far below this price. Since the overall goal of the state's temporary reserves is to ensure market supply and stabilize cotton prices, the current cotton supply is relatively loose and does not have the basis for throwing away reserves. However, the current reserve capacity of the State Reserve is full, and it is difficult to increase the storage capacity in the short term. Only throwing up the storage and storage facilities can ensure the smooth progress of the 2012 cotton collection and storage. Therefore, the market has great doubts about whether or not the countries in the collection and storage period will dump cotton, which will put pressure on cotton prices.

Spot demand continues to be weak

At present, the global economy is stagnating, and cotton consumption demand will continue to slump for a certain period of time. In February, China’s apparel sales continued to decline. From the Clothing export point of view, the total amount of China's garment exports in February was 19.29 billion US dollars, down 2.5% year-on-year; the total amount of textile exports was 11.94 billion US dollars, a year-on-year decrease of 2.6%. According to domestic apparel sales data, in the 3,000 key retailers monitored by the Ministry of Commerce in February, sales of apparel goods fell by 3.2% month-on-month, and apparel sales growth decreased by 7.7% year-on-year. According to another survey, due to the fierce fluctuations in cotton prices, the proportion of pure cotton or cotton-containing commodities in the apparel market has fallen significantly, which also reflects, to some extent, the current situation of weak cotton consumption.

Quota delays in issuing pressure cotton prices

Relative to higher domestic cotton prices, textile companies tend to use cotton. However, up till now, the NDRC has issued only 894,000 tons of in-quota tariff quotas and has not yet issued slip-tax quotas. The import requirements of textile companies have not been met. Recently, the cotton circulation enterprises and textile enterprises have noticeably increased their attention on imported cotton, but they can only wait for the NDRC to issue a slippery tax quota soon. Some enterprises purchase tariff quotas to ensure production. The price quota for 1% cotton imports has risen to 2,600-2,700 yuan per ton. Some companies also directly purchase cotton yarn in the international market to reduce costs. In February, the import volume of China's cotton yarn hit a record high, reaching 123,500 tons, an increase of 72.36% compared with the previous month and an increase of 122.36% year-on-year, indicating that the market's external cotton demand was strong. Although the delay in the issuance of quotas has stabilized domestic cotton prices, it has produced a greater suppression effect on cotton prices. If the quota is issued in April-May, the domestic cotton price will be under pressure. If it is issued in June-July, the impact on cotton prices will be relatively small.

From a technical point of view, Zheng Cotton's CF1209 contract has entered a downtrend channel, the warehouse volume continues to shrink, the period price is located in the Bollinger Bands under the middle track, showing that the short-term oscillations are weak.

Based on a comprehensive analysis, the cotton collection and storage work in 2011 is about to end, and the support for storage and collection has been weakened. The latter countries are faced with a policy game of throwing storage and stabilizing planting areas, and the issuance of sliding tariffs will exert greater pressure on futures prices. Zheng Cotton is under heavy pressure in the short-term and may continue to explore in the near future. Investors can pay attention to the support price around 21,000.

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