Xinjiang Cotton Landing Policy Cautiously Considering Cotton Price Rising Space

In November 14, 2019, the policy of purchasing and storage was introduced, but cotton prices were mediocre. The global economic slowdown and the uncertainty of trade frictions still dominated the market, and cotton prices rose slightly. The new cotton harvest and processing peak season is coming in the northern hemisphere, and domestic cotton production is lower than expected. Under the combined influence of purchasing and storage policies and trade frictions, the number of late looking spots increased, and short-term cotton prices temporarily stabilized.

First, global consumption is declining, and clothing sales are shrinking.

Under the influence of global economic growth and the uncertainty of Sino US trade policy, the International Cotton Advisory Committee lowered the growth rate of global cotton consumption in 2019 to 0.27%. Since the second half of 2019, the export of cotton yarn in Southeast Asia has declined. In September, the export volume of Vietnamese yarn decreased by 4.5% compared with the same period last year, while the export of textiles and textiles decreased by 3% compared with the same period last year. In the third quarter of 2019, the export revenue of garment exports in Bangladesh decreased by 1.64% compared with the same period, while T-shirt exports decreased by 7%. According to the Credit Suisse report, so far this year, the US retail industry has announced the closing of 7600 stores, a record high in the same period, of which about 75% are "soft line shops" for the sale of clothing or textiles. As a fast fashion giant, ZARA, H&M and GAP have also reduced stores. Demand side atrophy trend is difficult to change in the short term, cotton prices upward space is limited.

Two, domestic textile warming is weak, external demand is facing uncertainty.

After entering the October, domestic cotton prices and seasonal orders led to a slight rebound in the domestic cotton yarn market, but it was far from the traditional peak season of "golden nine silver ten" in previous years. The industrial chain showed cotton yarn weaker than cotton, cotton cloth weaker than cotton yarn, and textile and clothing the weakest trend. As of November 8, 2019, the futures price of zhengmian increased by 7.74% compared with the end of September, the spot price of lint rose 1.51%, cotton yarn rose only 0.97%, cotton cloth fell 0.04%, yarn cotton price difference and yarn price difference narrowed, and the profit of the company decreased. In October, the domestic retail sales of clothing and footwear knitted fabrics were reduced by 0.8% compared with the same period last year, while the export volume of textile and clothing decreased by 1.67% compared with the same period last year, of which clothing declined by 5.92%. Since December, with the beginning of Xinjiang cotton rotation, domestic cotton prices are expected to gain momentum, but the uncertainty of export orders for textile and clothing will continue and need to be treated with caution.

Three, Xinjiang's production is lower than expected, and the market entry policy will stabilize the market.

Affected by the cold weather in Xinjiang in 6-7, the harvest of Xinjiang cotton in 2019 was postponed for 7-10 days compared with last year. The market has changed from the expected increase in September to the expected reduction in October. Generally speaking, due to the increase of cotton planting area in Xinjiang and the current cotton processing progress in Xinjiang only 53%, the reduction of production is still early. According to the latest survey data of the national cotton market monitoring system in November, it is estimated that the output of Xinjiang cotton in 2019 will be 4 million 974 thousand tons, down 2.5% from the same period last year, much lower than that in the market 20-30%. Since December 2, 2019, the state has begun to purchase and buy 500 thousand tons of Xinjiang cotton, to a certain extent, easing the pressure of seasonal supply. According to the announcement, the price of the highest bid price (to the library price) will be determined dynamically according to the market conditions, which will help stabilize the cotton market and ensure the healthy operation of the industry. In the absence of further aggravation of trade frictions, cotton prices have been promoted or improved with the help of policies. In addition, the new round of cotton target price subsidy policy still needs attention.

Four, domestic cotton production and marketing forecast

This month's report will reduce cotton production from 317 thousand tons to 5 million 843 thousand tons in 2019/20, reduce consumption from 159 thousand and 800 tons to 7 million 588 thousand and 900 tons, and reduce the final inventory by 157 thousand and 200 tons to 5 million 753 thousand and 300 tons. Please refer to the table below.