Market Attention: The Sustainability Of Cotton Orders Issued After The Festival

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Before May Day, the downstream textile enterprises have the demand of replenishment, and pay attention to the continuity of follow-up orders. In view of the macro uncertainty, it is suggested to adopt the strategy of making more cotton in the second quarter.

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In February, with the macro logic such as re inflation and comprehensive recovery heating up, Zheng cotton prices continued to rise. In March, the fundamental performance is not enough to support the high price rise in the early stage, and the cotton price of Zheng has a correction. After the Xinjiang cotton ban event fermentation, Zheng cotton price callback range deepened, and then Zheng cotton stabilized and maintained horizontal oscillation. Recently, due to the weather disturbance in the planting area and the expected return of textile orders brought by the outbreak of the epidemic in India, cotton prices have gradually rebounded.

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Pay attention to the weather and sowing progress in the production area

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In 2020 / 2021, global cotton production and inventory will decrease. USDA's April cotton supply and demand monthly report shows that the global cotton inventory at the beginning of 2020 / 2021 will be reduced by 427000 bales, the output will be reduced by 276000 bales, and the consumption will be increased by 387000 bales. The global cotton inventory consumption ratio in 2020 / 2021 is 79.3%, which is 16% lower than that of the previous year. Cotton in the new year is in the stage of de stocking.

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From the survey results, cotton planting intention area in the new year decreased less than expected. First, although USDA's monthly report of cotton supply and demand in April will continue to reduce the global output in 2020 / 2021, according to the USDA US cotton planting intention report, the intended area of cotton planting in the United States in 2021 will be 12.036 million acres, a decrease of less than 1% compared with 12.0925 million acres last year. Second, according to the fourth survey report on cotton planting intention in 2021 issued by China Cotton Association, the area of cotton planting intention in China was 43.6755 million mu, a year-on-year decrease of 4.99%. Among them, the cotton planting intention area of Xinjiang cotton farmers increased by 0.61% year-on-year, the cotton planting intention area in the Yellow River Basin decreased by 28.80%, and the cotton planting intention area in the Yangtze River Basin decreased by 27.03%.

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At present, it is in the peak period of sowing, and the weather disturbance has become the focus of attention in the near future. In the second half of last week, the weather of rain, snow and cooling appeared in many places in Xinjiang. For cotton fields that have already sprouted or are about to emerge, if they are affected by low temperature and cold damage, they will have the opportunity to replant after the temperature rises. So in terms of weather, the impact is limited at present. In terms of American cotton, according to USDA data, as of April 18, the U.S. cotton planting progress was 11%, which was the same as the same period last year, and increased by 2 percentage points compared with the average value in the past five years.

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However, it should be noted that, according to the survey report of China Cotton Association, the cost of cotton planting has increased sharply in Xinjiang this year, and the pressure of cotton farmers to plant cotton is greater. In order to reduce the risk, some farmers have reduced the planting area. Pay attention to the change of cotton planting area and new cotton planting cost.

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Demand returned to pre epidemic level

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Due to the low base effect and macro recovery, the downstream demand and terminal consumption in the first quarter both performed well. Specifically, in the first quarter, China's yarn output increased by 32.1% year-on-year, and cloth output increased by 12.5% year-on-year. In terms of domestic sales, China's clothing and textile retail sales increased by 54.2% year-on-year in the first quarter. In terms of export sales, textile exports increased by 40.3% year-on-year in the first quarter, and clothing exports increased by 47.7% year-on-year. In terms of profit, the total profit of China's textile industry increased by 1.43 times from January to February.

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To exclude the impact of a low base in 2020, we compare the data from 2021 to 2019. In the first quarter, China's yarn output decreased by 0.2% compared with the same period in 2019, and cloth output decreased by 21.5%. In terms of domestic sales, the retail sales of clothing and textiles in the first quarter decreased by 0.6% compared with the same period in 2019, and the domestic sales basically returned to the pre epidemic level. In terms of export sales, since the outbreak of the epidemic, textile and clothing export orders have surged. In the first quarter, China's textile export increased by 18.2% compared with the same period in 2019, and the clothing export increased by 13.1%. In terms of profit, the total profit of China's textile industry from January to February decreased by 14.5% compared with the same period in 2019.

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Overall, yarn performance is significantly better than grey cloth, textile and clothing export sales are better than domestic sales, textile and clothing demand returned to the level before the epidemic, but it is necessary to observe the continuity of follow-up orders.

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Macro uncertainty is large

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The ban on Xinjiang cotton is not new news. Although the industry has digested this news before, its political impact is far greater than its fundamental impact. In view of the fact that in the second quarter, there is still support for the overseas market's replenishment force, while the margin of the domestic market's replenishment force is weakened, and the recent successive mentions of bulk commodities by various ministries and commissions will aggravate the macro market fluctuation in the second quarter.

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In terms of supply, the decrease of cotton planting intention area in the new year is less than expected. Currently, it is in the stage of new cotton planting in the northern hemisphere. The future market should continue to pay attention to the weather changes and sowing progress in the production area. In terms of demand, textile and clothing demand returned to the level before the epidemic, but the performance of "gold, silver and four" was not as expected. Before May 1, downstream textile enterprises had demand for replenishment, and paid attention to the continuity of subsequent orders. In view of the macro uncertainty, it is suggested to adopt the strategy of making more cotton in the second quarter.