Zheng Cotton Fell 1390 Yuan On The 2 Day, The Market Participants Interpreted The Logic Behind The Continuous Limit.

In May 14th, domestic cotton futures continued to decline, and the main contract of Zheng cotton and cotton yarn futures were both down. The main contract of Zheng cotton futures fell 7.03%, to 13820 yuan, and cotton yarn futures contract fell 6.91%, to 22165 yuan.

Zheng Shang also issued a risk warning letter today to remind investors to pay attention to risk prevention.

What is the logic behind this two day continuous limit?

What is the interpretation of market participants?

Trade disputes escalate and downstream demand slows down

On May 13th, the office of the United States Trade Representative (USTR) announced that it would seek advice and hold a public hearing on about 25% US tariffs on Chinese goods, and USTR also announced a tax list covering 3805 products, including mobile phones and laptops, in the annex. USTR

USTR will hold a public hearing on this list in June 17th, and cease to submit written opinions. USTR requires the evidence and materials to be submitted to public hearings before June 10th. The deadline for collecting opinions and soliciting opinions in June 24th is obviously shorter than that of the past.

Figure: rounds of us 301 customs hearing procedure arrangement

Review:

In May 9, 2019, the US government announced that since May 10, 2019, tariff rates on goods imported from China for 200 billion US dollars have been raised from 10% to 25%.

As a counterattack, in May 13th, the customs and Tariff Commission of the State Council of China decided that since June 1, 2019 0, the tariff rate of US $60 billion in the US commodity has been raised, and the tariff rate of 25%, 20% or 10% has been raised separately.

Since April, the consumption of textile and clothing has continued to be weak. Customs data show that in April 2019, China's exports of textiles and clothing decreased by 9.43% compared with the same period in April 2019, and the total export volume decreased by 8.45% in the same period.

In February, the US import and export of Chinese textile and clothing decreased double last year, while the imports to Vietnam and India increased substantially. The impact of the Sino US trade frictions has already pushed the US traders' orders to the Southeast Asian region. The domestic textile consumption has shown the "peak season is lighter and the off-season is even lighter". The situation of the downstream industry market in the off-season is obvious, and the lack of demand has been pressing the disk.

In the 200 billion list of newly added products, the amount of textiles and clothing exported to the United States is about 4 billion dollars. If the US impose tariffs on the remaining 300 billion dollars, it will contain more Chinese exports to the United States, such as woven garments, knitted garments and household textile products, which will involve about 45 billion US dollars in exports of textiles and clothing to the United States, and the export of the downstream textile and clothing will be impeded to cotton consumption. It is estimated that the domestic cotton consumption will be reduced by about 1 million tons, and domestic cotton consumption will be reduced by about 12%. We can see that about 15% of the amount of the goods added to the tariff is more than that of cotton spinning products, so the impact on the cotton textile industry is greater.

US cotton production is expected to increase, and external market will drag down Zheng cotton.

5月10日公布的美国农业部报告中，2019/20年美国产量预期479万吨，较上一年度增加79.1万吨，期末结转库存较上一年度增加38.1万吨至139.3万吨，全球产量较上一年度增加152.9万吨至2731.5万吨，全球消费较上一年度增加70.1万吨至2741.8万吨，库存消费比下降至60.10%，仅从报告本身数据来看，全球棉花库存消费比下降，利好全球市场，但对于美棉是利空，美棉市场来看，美棉产量调增，而出口和消费增加的预期准确性或许不尽如意，当前中美贸易关系模糊局势以及全球经济堪忧境况下，全球以及中国棉花消费量的增加预期有待考量，中方作为美国最大的棉花进口国，贸易摩擦的升级直接影响美棉对中国出口量，当前美棉新一年度结转库存为自08年以来最高位，贸易摩擦势必影响美国高库存的释放，USDA报告只是给予市场一个数据预期，而真正主导美棉走势的仍然是中美贸易的

In the future, the pessimism inside and outside the market is strong, lack of confidence in funds, and the collapse of the disk caused by the withdrawal of the target. If the agreement is eased, there will still be opportunities for us cotton to turn upward, and at the same time, domestic sentiment will trigger Zheng cotton's rebound.

Domestic inventory and policy guidance to keep inventory

According to the China Cotton Association survey, the total cotton inventory in the end of April was about 3 million 794 thousand and 900 tons, down 369 thousand and 100 tons from the previous month. But last year, business inventories increased by 921 thousand and 500 tons compared with the same period last year, and domestic cotton business inventories were still at a high level for the same period last year. In addition, the 19 year 800 thousand ton slide tariff quota policy was earlier than last year, and the cotton supply continued to be replenishment, and the supply of cotton market continued to increase.

In summary, the current market is still in the process of emotional venting, or there is still room for downfall. If Sino US negotiations progress, cotton price will be 14500 yuan / ton or support. If the friction between the two sides continues to escalate, under the limit, Zheng cotton will fall to 13500 yuan / ton.

Other points of view in the market are as follows

Galaxy futures analyst Yan Bao Tang: the market's macro systemic risk is relatively large in the near future, and macro sentiment will dominate the market in the short term.

In the recent fall of futures prices, the futures price is more attractive to the downstream textile enterprises, and the cotton base price is active in the market, and the selling company at a single price is very passive.

Recently, cotton yarn spot trading was weak, textile enterprises started to operate relatively low, cotton yarn prices also weakened, most traders actively shipped.

Hong Runxia, general manager of the Yangtze futures cotton textile industry department: the main reason for the weak cotton price is that the global planting area has been gradually improved over the past three years, and the output has reached a higher level. The gap between the global production and marketing has gradually narrowed down, and next year it is likely to produce much more than that.

At the same time, coupled with the global balance of supply and demand last year, the domestic market is still selling cotton to the market.

In the context of global supply and demand has reached a balance, the domestic still throw 2 million tons of storage, and even in June announced the domestic postponed throwing and storage 500 thousand tons + additional quota of 800 thousand tons under the pressure of policy, the state stock pfer to the social inventory is particularly large, new cotton and centralized listing.

In the fourth quarter of last year, in the background of the macro pessimism, the first half of 2018/19 went through the worst stage, which made the supply very ample this year.

Yan you FA, general manager of Yan Shi De Hai Agricultural Technology Co., Ltd. in Xinjiang: farmers who planted cotton in Xinjiang basically earned money last year. This year most farmers in Xinjiang have high enthusiasm for planting cotton.

Although many areas of cotton have been damaged by bad weather, local farmers are actively replanting them.

Recently, the company is sending cotton seeds to all parts of Xinjiang, so that farmers can replant in time.

He estimated that the cotton planting area in Xinjiang will not decrease this year, and the total output in the future will not decrease significantly.

Si Xiaoyu, a researcher of agricultural products of Meyer Futures Co., Ltd.: yesterday, Zheng cotton was going down and down, and the price of the multi leveled single basket was short after the price was trampled down 15080 yuan / ton, which led to the panic of many large single stocks and the 10 minute limit.

The price of Zheng cotton has been sharply reduced, which is mainly influenced by four factors: first, the macro level uncertainty is enhanced; secondly, the relatively high social inventory caused by throwing storage and high-yield in the previous year caused a certain price pressure; thirdly, after the downstream year, the heat of purchase and sale is limited, and there is a significant division between regions; fourth, the subsequent orders and exports are not ideal.

In particular, the export data of textile and clothing announced in early May were reduced by 9% compared to the same month in April.

Judging from the overall trend, this year is only better than 2014/2015, and the industry is expected to be significantly affected.

In fact, since the beginning of the year, there has been a lot of bad energy accumulation either in the macro aspect or in the supply side, or in the middle and lower reaches of consumption.

Si Xiaoyu said: "the recent decline in the downstream purchase and sale makes the energy consumption of the consumer side insufficient, and the above savings energy will be affected by the news of this Monday morning."

Fang Huiling, senior analyst of futures products in Tokyo: the market is concerned about the prospect of consumption in China and the world, and the increase in risk at the macro level. Overlooking the expectation of the new year's cotton and global expansion in the USDA5 supply and demand report is the main reason for the May 13th limit of Zheng cotton futures.

(source 21 finance, founder medium-term futures, Oriental Wealth Securities Research Institute, gold investment network / editor Shanghai international cotton trading center)