Market Analysis: Many Factors Lead To Low Cotton Prices, Affecting The Recovery Of The Consumer Market

 

Low cotton prices are difficult to drive the recovery of consumption, and there is a long way for cotton to go to the Treasury. Due to the textile industry's nature of surrogate processing, the bargaining power of the upstream and downstream is weak, and the downstream pricing is more based on the cotton price trend. The lower cotton price leads to the cooling of the textile market, which continues to worsen the yarn and grey cloth inventory that has been continuously accumulated.

In the case that the mentality of textile industry has not improved, the strategy of purchasing raw materials is still maintained. In May, commercial inventory decreased by 499000 tons on a month on month basis, less than 554200 tons in the same period last year, and the inventory level increased by 584900 tons compared with the same period last year. Although in recent years, with the decline of futures panel price and the increase of point price transactions, lint sales of ginning plants have accelerated, but it does not mean that the cotton inventory has been removed.

Textile enterprises purchase and consumption is relatively limited, and traders to undertake the expansion of the strength, become the recent market actual buyers. So the supply pressure is still going back, and the fact that there is enough supply has not changed.

Before, the trading logic of investors was the contradiction between weak domestic demand (including the sluggish demand and logistics caused by the epidemic situation) and strong cost support (the spot price of ginning plants rose, the drought in the United States and the tight position of American cotton at that time) under the condition of macro neutral short (the environment of small interest rate increase in the United States), and the market reached a weak balance during this period.

As a matter of fact, the current logic is that the pace of the Fed's interest rate hike has changed dramatically due to the acceleration of inflation. The original mild expectation of interest rate increase has been broken, and the rapid interest rate increase has intensified the suppression of demand, resulting in market panic. The whole trading atmosphere changes because of the macro trend.

At present, the transaction logic has changed into: the demand recovery after the domestic epidemic is proved to be false, the export of Xinjiang products is limited, and the interest rate increase further suppresses the global demand, and the contradiction between weak demand and strong cost support of ginning plants. In the case of huge negative feedback factors, negative factors have been formed to support the outbreak.

At present, the bulk commodities including cotton have entered the stage of eliminating financial valuation, and the appreciation of the US dollar further reduces the valuation of US dollar priced products until there is actual demand.