Member ID:
Stay logged in for 30 days
Forget Your Password?

login CCFGroup App

Insight | Time:Dec 21 2016 2:00PM
Chinese cotton price expected to rise in Q2, 2017
Text size
Zhengzhou cotton futures market continued to decrease from last week and began to dive on Dec 19. The most actively contract, May contract, has slumped to 14,905yuan/mt on Dec 20, down nearly 840yuan/mt in the first two days of this week. From the technical analysis, MACD (Moving Average Convergence-Divergence) and KDJ indicators showed signs of adjustment. From the fundamental analysis, cotton futures were affected significantly by the commodity market with the retreat of capital. Moreover, the physical market remained weak. On one hand, the downstream yarn and grey fabric market kept lackluster. Spinning mills’ operating rate decreased slowly and cotton inventory in mills also declined. Grey fabric plants also cut operating rate to face the dull sales. On the other hand, the ginning volumes of new cotton in Xinjiang have exceeded 3.60 million tons, so the total output may reach 4.00 million tons, much higher than market anticipation, weighing on the market.

Market outlook
For the market outlook, we analyze from the technical aspect firstly. In short term, viewed from the daily k-line, the market is likely to shiver around 14,800-15,000yuan/mt. Later, if the market continues to decrease, it may dive to 14,500yuan/mt.

For the medium-to-long-term logic, we estimate that the market is relatively positive in the second quarter of 2017.

Firstly, for commodity market, the bullish sentiment has not ended and the capital has not retreated totally. In the second quarter, with the coming peak season, speculative buying may appear again, shoring up the cotton futures.

Secondly, looking from the policy, with the supply-side reform, planted areas of cotton is not likely to increase largely. The government has announced to start state cotton reserves sales from March 6, 2017. The possibility to sell large quantity of reserved cotton to dampen the prices is very limited, as the price decline will affect the sales of reserved cotton. Under the de-stocking strategy, it is not likely to sell reserved cotton on large quantity.

Thirdly, the downstream sectors are predicted to be not poor in the second quarter. The state cotton reserves sales will start in March 2017 and the floor bidding price of reserved cotton will continue to be set based on the average price of domestic and international cotton price. So, the production costs of cotton yarn may reduce with the reserved cotton like the situation in 2016, which is favorable for domestic mills.

In general, after the start of state cotton reserves sales in 2017, the Chinese cotton price is expected to rise. However, there is also risk if the reserved cotton is sold with large quantity. Once the domestic and international cotton prices soar obviously during a period and more than 70 percent of reserved cotton is sold per day for three days within one week, the daily selling volumes can be added. Then, prices are likely to shiver in broad range. But the market is still under the supply-side reform policy. So we expect Chinese cotton prices at 15,000-18,500yuan/mt in the second quarter of 2017.
Related Articles
Cotton market daily (Jun 26, 2017)
ZCE cotton futures market moves up
Cleared Australian cotton prices reduce further
Cleared U.S. cotton prices stable to weak
Recycled reserved upcountry cotton sales poor
China's cotton imports decrease in May, 2017
Cotton market morning express (Jun 26, 2017)
Selling price of China's reserved cotton during Jun 26-30,
Planned volumes of state cotton auction on Jun 26
State cotton reserves sales for Jun 23, 2017
Cotton production and consumption structure analysis in ...
PTMEG: price stops falling, supply&demand pattern alters ...
Influence forecast of CPL capacity expansion in second half ...
Will Chinese domestic cotton yarn emerge with uncompetitive ...
Polyester industrial chain pattern and change
Analysis of changes on China's MEG market structure

浙公网安备 33010902000742号