Reserve cotton will begin to be released, and the cotton price trend may rise first and then fall
2016Year11Month24Day, National Development and Reform Commission and the Ministry of Finance jointly announced:2017the cotton reserve sales will be from3month6Starting from the beginning of the day, the deadline is tentatively set at the end of8. The daily listed sales number is tentatively b style=”line-height: 1.8em;”>3Ten thousand tons arrangement. If domestic and foreign market prices rise significantly and rapidly over a period of time, the reserve cotton bidding sales transaction rate will exceed70%, the number of daily listings will be appropriately increased and the sales period will be extended.
From the analysis of cotton supply and demand, it is predicted that the domestic cotton market will be oversupplied before the end of February. If the cotton reserves are rotated out as planned, it may put pressure on cotton prices. Judging from the purchasing intentions of downstream companies, the initial bidding price of cotton reserves may go up, mainly because fabric companies are waiting for the release of cotton reserves. If fabric companies do not continue to replenish their stocks during this period, cotton prices may rise in the early stages of launch, but they will still face greater downward pressure in the later period.
Cotton stocks in intermediate links have increased significantly
Data shows that from September 2016 to January 2017, a total of 4.677 million tons of lint cotton was sorted in Xinjiang and the mainland, of which 2.879 million tons were sold and 1.798 million tons were unsold. During the same period, cotton commercial stocks were 2.678 million tons, and the difference between unsold cotton and cotton commercial stocks was 880,000 tons. Under normal circumstances, if all the cotton sold is purchased by fabric companies and enters the warehouses of fabric companies, there should be little difference between the two data, but the difference of 880,000 tons is obviously too large. We believe that the reasons for this difference are, first, the part purchased by fabric companies but not put into storage, and second, the part purchased by middlemen.
For comparison, from September 2015 to January 2016, a total of 4.622 million tons of lint cotton was sorted nationwide, of which 2.393 million tons were sold and 2.229 million tons were unsold. During the same period, the cotton commercial inventory was 2.34 million tons. The difference between unsold cotton and cotton commercial stocks is 111,000 tons, which is significantly lower than this year’s 880,000 tons. We believe that this data verifies the destocking process of cotton intermediate links in the same period last year.
Market sentiment has improved significantly compared with the previous year
Before the cotton reserve was released, domestic cotton supply exceeded demand. As of the end of January 2017, there were 1.798 million tons of unsold cotton in the country and 880,000 tons of intermediate inventory. Considering that Xinjiang’s cotton reserve stock is extremely low, it is estimated that Xinjiang’s textile enterprises will reserve 600,000 tons of cotton for eight months (to be used until the end of September 2017). It is estimated that China imported 80,000 tons of cotton in February, and demand from mainland fabric companies was 650,000 tons. As of the end of February 2017, domestic cotton supply and demand profit and loss = 179.8+88-60+8-65=150.8 (10,000 tons).
Data shows that in March and April 2016, the cotton inventory of fabric companies remained at about 330,000 tons, while at the end of January 2017, the cotton inventory of fabric companies was about 650,000 tons. This year’s cotton inventory of fabric companies has increased significantly. If the cotton inventory of fabric companies does not decrease significantly before the end of February, the rush to buy cotton in the early stages of reserve cotton rotation will be weaker than last year. By the end of January 2017, 2.388 million tons of lint cotton had been sold in Xinjiang, and 1.5125 million tons had been shipped out. Although 875,500 tons of lint cotton had been sold, they had not left Xinjiang. By the end of March 2016, Xinjiang had sold 2.096 million tons of lint cotton, shipped 2.393 million tons overseas, and 297,000 tons of lint cotton had not been sold but had left Xinjiang.
It can be seen from the comparison of data that the seller’s mentality has changed significantly in the previous year and the following year, which to a certain extent also supported the strong cotton price at the beginning of the year.
Based on comprehensive analysis, we believe that before the reserve cotton was released, the domestic cotton market was oversupplied and cotton prices lacked a basis for continued growth. Moreover, the inventory of intermediate links and fabric companies is significantly higher than that of the previous year, and it is difficult to repeat the situation of continuing to snap up cotton reserves. However, if fabric companies wait for the cotton reserves to be rotated out and reduce cotton stocks to a relatively low level in the early stage of the release of reserve cotton, cotton prices may rise rapidly in the early stage of the release of reserve cotton.
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