Why Does Raw Material Inventory Fall To Low Position?

Over the past week or so, Zheng cotton has rebounded from the low of 13245 yuan / ton, and the price of CF1909 contract has gone up to 14000 yuan / ton, while the spot market has been almost unsalable, except for some traders' "point price" resources, which have been asked and traded. The corresponding short store cotton turnover rate has dropped below 90%.

From the author's investigation, the market shows two extreme phenomena. Buyers and sellers are looking for and waiting for a suitable entry point, a signal or even a positive news.

On the one hand, raw material inventory of cotton textile enterprises in Henan, Jiangsu, Zhejiang, Shandong, Hebei and other places has dropped to a relatively low level (gauze inventory has continued to grow in the near future, occupying funds and manpower). A few cotton mills even have cotton and long-term orders. Some of them are "lifting their elbow". Theoretically speaking, replenish cotton stocks is imminent.

On the other hand, although traders and a handful of ginning factories are willing to throw goods and sell goods, the price of "point price" resources is reduced by 1300-1500 yuan / ton compared with the end of April, but the actual downstream textile enterprises and middlemen are not buying and exporting.

The raw material inventory of textile enterprises has dropped to a low level, and the price of lint has also dropped to a price of sincerity. (according to the current "double 28" cotton picking price, the spot price is calculated at 14400-14500 yuan / ton weight, and the spot loss of the cotton mill is mostly 500 yuan / ton.

According to the current "point price" price of Xinjiang cotton and reserve cotton, the profit margin of the textile mill is still lower than that of the same period of 2017/18. But since late April, the price of Xinjiang cotton has dropped by nearly 1500 yuan / ton, and the price of cotton yarn has only been adjusted to 1000 yuan / ton, but why is the cotton market selling and selling decoupling?

The author thinks that the following two factors are crucial.

First, cotton textile business owners have declined significantly since the end of April, and have little confidence in whether they can regain confidence in 6-8 months. (Shanghai, Guangdong and Zhejiang several trading companies reflect the obvious pfer of orders to Southeast Asia after August).

From the survey results, as of the end of May, large and medium-sized spinning and weaving enterprises finished product inventory for more than 25 days or even 30 days, and the stock of individual mills reached 40-45 days, an increase of 7-15 days over the same period of 2017/18.

Although cotton and other raw materials do not contain a lot of liquidity, the stock of gauze, clothing and so on has made the enterprises weary. Therefore, under the precondition that the orders of the terminal consumer market such as foreign trade, clothing and so on have not been significantly warmer and rebounded, even if the price of cotton is reduced by 500-1000 yuan / ton, spinning enterprises are also "powerless" and can only be purchased with the purchase.

Two, the deadlock in Sino US trade negotiations is a "stumbling block" that restricts cotton textile enterprises from releasing their raw materials and purchasing raw materials.

Although in the first half of May, both sides clearly stated that the trade negotiations had not broken down, the door of the negotiations was open to each other. However, due to the fact that there was no further agreement on the timetable for negotiations and tariffs on imports, the trade war suddenly escalated.

The biggest worry for cotton companies is that the United States threatens to impose tariffs on the remaining 325 billion US dollars imported from China, which involves nearly 40 billion dollars of textile and clothing. If the two sides continue to wrestle and Trump continue to act arbitrarily, the impact on the export of national textile clothing should not be underestimated (although some enterprises have reduced their risks through overseas construction, pfer of production sites, and many other ways).

However, cotton consumption in China will not fall off in 2018/19, but the tight balance between supply and demand will undoubtedly be broken, and cotton prices will continue to fall.