From the perspective of the global bulk commodity market, whether it be the CPI of developed nations or inflation domestically, the core factor behind them all lies in "crude oil." The potential long-term interruption of Libyan crude oil supply, along with existing instability factors in the Middle East region and a weakening dollar, makes it easy for crude oil prices to rise but difficult for them to fall. Apart from emerging market countries, inflation in Europe and the United States has also begun to increase. In April, the European Central Bank announced an interest rate hike of 25 basis points at its monetary policy meeting, marking the beginning of the withdrawal of loose monetary policies by developed countries since the financial crisis. Overall, the commodity market is expected to see a price reversion.
In February, after staying near the 33,000 yuan/ton level for about half a month, cotton futures initiated an attack on new highs. On February 17, Zhengzhou Cotton's main contract 1109 reached a historical high of 34,870 yuan/ton, after which cotton futures prices entered a correction phase.
Planning: General Editorial Office of China Textile News
Cotton Futures -
Execution: Jinshi Futures Research Institute
Looking ahead, PTA futures' short-term prices remain in the process of oscillating and bottom probing. Whether future prices can stabilize and rebound depends on downstream demand, closely monitoring the inventory situation of downstream polyester factories. The key support level for the main TA1109 contract may be around 9,800-10,000 yuan/ton.
The similar declines in the prices of the two major textile raw materials might seem coincidental, but the underlying market logic converges.
As the spot price of cotton adjusted downward and the product prices of downstream textile companies fell, cotton futures prices followed suit. After nearly three months of operation, the continuous sluggishness of downstream textile product prices has completely deprived cotton prices of their upward momentum. Following the first quarter, numerous macroeconomic control policies have emerged domestically. Under the macroeconomic environment of domestic price control, the cotton price surge triggered by supply gaps has been halted.
With the rise and subsequent decline of cotton prices, the domestic price of 32-count yarn dropped from 39,600 yuan/ton in mid-February to 35,900 yuan/ton on April 20, losing 3,700 yuan/ton. The substitute polyester staple fiber price fell from 15,100 yuan/ton in mid-February to 13,700 yuan/ton on April 20, losing 1,400 yuan/ton.
Can cotton prices reach the 30,000 yuan mark again? Will textile companies reduce prices to clear inventory or wait for sales to improve?
Under the backdrop of ongoing inflation and supply gaps, the future price of Zhengzhou Cotton's main futures contract will largely depend on the state of downstream textile sales. Whether textile companies can withstand the high cotton prices transmitted through the industrial chain will become the weight determining the rise and fall of cotton futures prices.
Since the start of 2011, PTA futures prices have risen initially but subsequently declined, showing an overall "inverted V" shape in the first four months. Pushed by tight conditions in the PTA spot market at the beginning of the year, futures prices steadily rose, with the main September contract reaching a new high of 12,508 yuan/ton on February 15 since its listing. However, the continued tightening of macroeconomic monetary policies and sluggish downstream sales did not allow PTA futures prices to stay at high levels for long. Starting from late February, they followed the general trend of the commodities market and embarked on a wave of oscillatory decline.
The decline in downstream textile product prices has made textile companies reluctant to sell at low prices, leading to inventory buildup. Insufficient production rates in textile enterprises and even shutdowns among some small textile factories have reduced the willingness of cloth factories to purchase yarn. The high cotton prices accepted by textile companies have become like hot potatoes.
Zhengzhou Cotton seeks a bottom amid consumption boost expectations.
In summary, under the backdrop of domestic inflation and a still-existing cotton supply-demand gap of 1.1 million tons, rising commodity prices are an inevitable trend. Reaching 30,000 yuan for cotton prices is not baseless talk. Policies such as regulation, interest rate hikes, RMB appreciation, and reserve purchase plans have all become fleeting clouds. What cotton prices lack for another takeoff is only a consumption boost.
Another important factor affecting cotton prices is the amount of available cotton in the market before the new crop hits the market. According to estimates, compared to previous years, this year's lean period in the cotton market will arrive earlier in early August. As the lean period approaches, the process of Zhengzhou Cotton oscillating and seeking a bottom will conclude. In the short term, the main contract prices of cotton futures will continue to move forward in a volatile manner, with an estimated range of 27,500-28,400 yuan/ton. In the medium to long term, attention should be paid to the sales situation of the textile downstream sector and the transaction results of the Canton Fair. Once conditions improve, cotton futures prices will rely on the psychological cost of 27,500 yuan/ton to launch a new round of price increases.
Textile companies bear the brunt of high cotton prices.
Due to adverse weather conditions affecting the three major domestic production areas during the 2010/11 season, there was a supply gap of 3.8 million tons of cotton, driving cotton prices above the 30,000 yuan barrier. While high cotton prices brought rich profits to cotton farmers, the heat of these high prices also spread through the cotton industry chain into the hands of textile companies.
By April 20, the price of the Zhengzhou Cotton main contract 1109 had fallen to 27,500 yuan/ton, losing 5,500 yuan/ton, representing a drop of nearly 17%.
By April 20, the price of the PTA futures TA1109 contract had fallen to 10,382 yuan/ton, down nearly 17% from the year's peak.