On June 1, the ZCE flagship cotton contract, the September contract, soared above 900 yuan/MT, and the spread between the September and January contracts narrowed unexpectedly sharply. The rise of the September contract was clearly higher than that of the January contract. Soon rumors started spreading in the market. There are mainly two rumors: 1. The commercial cotton stock issued by an institution is not consistent with the actual stock, and some enterprises believe that the actual commercial cotton stock is relatively tight; 2. A large spinning mill bought a large quantity of cotton. There were good orders in some markets and there were rumors that orders may be completed by the end of October in some markets.
From the first rumours, different opinions are coming out regarding the stock data. Each enterprise and institution has its own investigation, and may have its own way of calculating the difference data on the stock data between the respective institution and the real market. As per our views from the market position, the stock may not get as tight as the rumors saying below 2 MT. Some enterprises keep the stock till now and the sales are low. Nevertheless, with sales from October 2022 to May 2023 at low prices spot cotton supplies gradually reduced, especially when ZCE cotton futures declined on May 25-26, sales have markedly improved, And mainstream bases climbed rapidly. Some vendors who offer higher prices also start selling. Subsequently, with a gradual reduction in cotton inventories, the base is expected to strengthen gradually. In addition, monthly cotton imports have been consistently below 100kt this year, and cotton inventories may gradually reduce through August and September, 2022/23. However, no clear supply gap is currently observed.
For the second rumour, we have confirmed with relative spinning mill, it has not bought cotton in large quantities this week, and the major buying happened during last week, when ZCE cotton futures declined during May 25 and May 26 Was. For downstream demand, the downstream market is in a sluggish mood, and sales in May are thinner than in April. Nevertheless, the situation is different in different markets, and the Guangdong market is the weakest this year, while the previously hot Nantong market also cooled down somewhat. But the operating rates of spinning mills have not slowed down and cotton consumption has actually been consistently high this year.
The sharp jump in ZCE Cotton on June 1 is further rooted in medium to long term bullish expectation. Although 2022/23 Chinese cotton production is high, cotton imports are largely down year-on-year, and from the demand side, monthly cotton consumption has been consistently above 700kt or 750kt since March, 2023. With the digestion of available cotton stocks, cotton supplies are believed to tighten gradually in the period leading up to the end of the 2022/23 cotton 2022/23 season. In terms of the market in the 2023/24 season, weather conditions in Xinjiang remain unfavorable from late April to late May, and still expect a large reduction in 2023/24 Xinjiang cotton production and seed cotton harvesting in the second Are. half a year. On 21st May, when Xinjiang faced bad weather again, ZCE Cotton tried to climb again on 22-23rd May, but the macro environment is overshadowed and most of the commodity prices fell on 22-23rd May declined, so ZCE Cotton failed to rise. During May 24 and May 31, ZCE Cotton futures declined following the trend of the commodity market. The open interest of the ZCE September contract declined by around 100,000 lots during May 24 and May 26. On May 31, after the release of China's manufacturing PMI, bearish sentiment retreated from time to time, and bulls re-entered the market, and ZCE cotton futures rose significantly on June 1 based on rumors. The bullish outlook for the cotton market in the medium to long term never changes.
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Team Sis
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