Cotton surges 17% in 8 days, cotton starts surge mode

After regaining the lost ground in nearly 5 months in 8 days, cotton futures made a strong return. As of now, the main contract of Zheng cotton futures has increased by 6.24% within 1609 days, which is close to the daily limit. Since last week, the main contract of Zheng cotton futures, 1609, has risen by about 17.1% to 12,175 yuan/ton, and the price has returned to the level in late November last year.
Since last week, domestic cotton futures have experienced a rare surge. The price of the main cotton futures contract has risen to nearly 2,000 yuan since last week, while the 2016 Xinjiang cotton target price announced by the National Development and Reform Commission is as high as 18,600 yuan per ton.
Everbright Securities analyst Li Jie pointed out in a report yesterday that the rare surge in cotton futures is due to changes in the short-term cotton supply and demand relationship, and the market is currently in short supply.
On the one hand, the cotton inventory of downstream textile enterprises is low. According to the latest data from the General Administration of Customs, the export growth rate of the textile industry in March was as high as 34.10% year-on-year, reversing the negative growth trend in the previous two months. Orders in the textile industry have rebounded, which has a significant boost to upstream cotton demand.
On the other hand, the State Reserve’s cotton rotation policy was implemented on April 15, and the cotton rotation was postponed from mid-April to May, and the rotation price was dynamically adjusted in line with the market, which undoubtedly gave the market reassurance.
In addition, according to the March survey of the National Cotton Market Monitoring System, the intended cotton planting area nationwide in 2016 reached 44.627 million acres, a year-on-year decrease of 6.561 million acres, a decrease of 12.8%, of which the intended cotton planting area in Xinjiang was 28.527 million acres, a year-on-year decrease of 8.0% , it is expected that national cotton production will be significantly reduced this year. In contrast, domestic cotton demand has basically remained stable. As the price difference between domestic and foreign cotton continues to narrow, there is no room for downward decline in domestic cotton prices.
Last Monday, after the futures prices of Zheng Cotton’s main 1609 and 1701 contracts both rose to the daily limit, Mi Hanjie, an analyst at GF Securities, mentioned in a report the next day that behind the futures daily limit was the change in domestic cotton supply and demand.
The inventory of enterprises in the industrial chain is currently seriously insufficient, because during the previous decline in cotton prices, whoever had the largest inventory lost money, so many enterprises kept their inventory very low. From a mid- to long-term perspective, industry insiders currently generally expect that the pace of cotton reserve destocking is only within 1 million tons a year, and the amount of input is very small. In addition, cotton production has continued to shrink in recent years, and subsidies for cotton cultivation in the mainland are low. Hebei, Shandong, Hubei, Henan, etc. The planting area of ​​cotton areas in the mainland is declining rapidly. Even if Xinjiang has target price subsidies, cotton farmers generally have low incomes and the planting area can only be maintained. In 2016, the national cotton planting area continued to decline sharply by 12.80%, and the output is expected to be 4.81 million tons. Imports are expected to be 1.1 million tons, and the overall supply is about 6.91 million tons. On the demand side, cotton consumption in 2015 has already reached 7 million tons. Cotton yarn imports from January to February this year fell 19.1% year-on-year, reflecting the domestic yarn enterprises’ due to The price difference between domestic and foreign cotton has narrowed significantly, and the demand for domestic cotton has increased. Based on this calculation, cotton supply and demand have reversed.