After Zheng cotton futures stabilized at 18,000 yuan/ton last week, the front-month contract once pointed to 19,000 yuan/ton; ICE cotton also continued to hit new highs, breaking through the high point on February 25 this year, and is expected to challenge 100 cents/pound, the market is bullish. In fact, except for USDA’s August supply and demand report, there seems to be no good news for cotton, but cotton prices have continued to rise steadily, and the increase is indeed strange.
In the short term, cotton seems to still have a strong trend, but poor downstream price transmission, large price differences between domestic and foreign cotton, and high spinning profits have prompted undercurrents in the ability to expand spinning production. . In the external market, funds’ holdings of long cotton positions seem to be reaching their limit. These factors will restrict the rise of cotton in the later period, and bullish investors still need to be calm.
Funds’ long positions in ICE cotton seem to have reached their limit
Funds Changes in positions are highly correlated with the trend of ICE cotton futures prices. When the net position is short, it indicates that the fund is bearish on the market, and ICE cotton prices generally fall. When the price rises, funds actively participate in long positions, and the net position is long. When the cotton market was at its most pessimistic during the COVID-19 epidemic in 2020, the price of ICE cotton was close to 40 cents/pound, and the net short positions of funds increased to a maximum of 9,441. Then ICE cotton bottomed out and rebounded. It began to increase on May 12, and the price of ICE cotton was 58.37 cents. Then the futures price rose all the way to 92.58 cents/pound on February 23, 2021. The fund’s net long orders reached 97,028 lots, and ICE cotton was in the next 2 days. On the trading day, it reached 95.6 cents/pound and then turned downward, with funds reducing long positions all the way.
The time when the fund increased its long orders again was between June 22 and 29. The net long orders increased to more than 70,000 lots, and ICE cotton climbed slightly to August 17. Daily fund net long orders increased to 103,000 contracts, and futures prices rose to a maximum of 94.74 cents/pound. When most investors in the market believed that the second round of ICE cotton would go straight to 100 cents/pound, history repeated itself. The futures price peaked in just one trading day and began the current downward trend. Judging from the net long positions of funds in the past two years, the maximum allocation of cotton positions is 90,000-110,000, which is the limit. Subsequently, there are obvious signs of lightening up, and it is not surprising that ICE cotton has peaked.
High spinning profits and undercurrent of capacity expansion
24 The Japanese cotton yarn (32 count) index is 27,510 yuan/ton, and the 3128 grade cotton index is 18,309 yuan/ton. Calculated based on the comprehensive processing fee of 6,100 yuan/ton, the spinning profit is 1,187 yuan/ton. According to this statistical caliber, tracking spinning profits can be found that starting from late December 2020, spinning began to make profits, and profits in March could reach up to more than 2,000 yuan/ton. This spinning profit is rare since 2016 not only in terms of duration but also absolute amount, lasting as long as one year and eight months.
Individuals in the textile circle said that spinning companies that had suffered losses in the past few years have reopened. Many small textile mills have plans to expand production, but unfortunately it is difficult to order spinning equipment. Need to queue. The author believes that the increase in demand for cotton yarn should be analyzed calmly. Whether the main reason is the transfer of orders to the country due to overseas epidemics. If the external demand orders ebb, the expansion of new domestic spinning capacity will undoubtedly increase the supply of cotton yarn. When the price falls, a stampede will form, and soon It will be transmitted to the cotton.
The cotton price difference structure indicates weaker demand in the later period
Judging from the contract spread of cotton futures, the spread of ICE cotton futures is near high and far low. The new cotton contract in December is 1 cent/pound higher than the March contract, with a range of 1%. Domestic cotton futures in September are higher than those in January and January. The May contract is almost flat. This structure of internal and external cotton price differences indicates that near-term demand is strong, while forward contract demand will be weaker than now.
Judging from the trend of domestic and foreign cotton price differences, the domestic spot price is 1,500 yuan/ton higher than that of U.S. cotton within the 1% tariff quota (calculated before tariffs are added). This high The price difference phenomenon has been maintained for nearly a year since September 2020.
Judging from the price difference between cotton yarn and polyester staple fiber, the price difference has been expanding since the end of June, with the January contract futures price difference reaching as high as 11,670 yuan/ton. It is conceivable that the competitiveness of chemical fiber has continued If it increases, it will continue to squeeze out the share of cotton yarn. This phenomenon is obviously abnormal and difficult to last.
In short, the author believes that since the 2020/2021 cotton in the United States has been sold out, funds have begun a soft squeeze on the ICE cotton contract and the old cotton contract. Forcing buyers to close or move their positions to far months, the prices of 2105, 2107, and 2110 contracts are easy to rise but difficult to fall, ultimately prompting the far month contracts to make up for the increase, which is beneficial for funds to leave the market with long orders. Domestic cotton yarn prices remain high, pushing up domestic cotton prices, but poor downstream conduction of cotton yarn does not support rising cotton prices. If funds begin to reduce their long positions one after another, the trend of ICE cotton is likely to be similar to the trend in March. It is not surprising that a round of market adjustment begins and it falls to 85 cents/pound. </p
