The Sino US Trade War Escalated Again, Zheng Mian Fell 800 Points In Two Days, And The Cotton Market Entered The "Cold Winter"

Yesterday, the CF1909 contract of Zheng Mian, the main force, fell to the limit of 12225 yuan/ton in the afternoon, which triggered the shock of cotton market again. In just two days, Zheng Mian fell nearly 800 points, continuing to set a new three-year low.

From President Trump of the United States to declare China as a currency manipulator after he announced that he would impose tariffs on another 300 billion dollars of Chinese goods on September 1; Since the negotiation between China and the United States started again last week, Chinese enterprises began to purchase American agricultural products. Yesterday, the National Development and Reform Commission and the Ministry of Commerce jointly announced that the Tariff Commission of the State Council temporarily did not rule out the imposition of import tariffs on the purchase of American agricultural products newly concluded after August 3, and Chinese related enterprises have suspended the purchase of American agricultural products. The rapid reversal of the trade situation between the two countries has left many cotton related business enterprises a bit shaken.

The upgrading of Sino US trade relations has brought not only a sharp drop in cotton prices, but also a blow to confidence that enterprises cannot bear. Since Zheng Mian opened the first round of limit fall in May this year, it has become the norm that at least one limit fall per month. This has caused a deep blow to the entire cotton textile industry chain from the outside to the inside. Terminal clothing orders have decreased, yarn and grey cloth inventories have been accumulating, cotton is hard to sell on hand, and production reduction and downtime of enterprises have increased, including some enterprises switching to Southeast Asian countries.

According to the data from the National Cotton Market Monitoring System, as of August 2, 2019, the national new cotton sales rate in 2018/19 was 79.6%, down 9.2 percentage points year on year, of which the sales rate in Xinjiang was 77.8%. According to the estimated domestic cotton output of 6.105 million tons, there were still about 1.245 million tons of new cotton to be sold nationwide. Downstream domestic and foreign sales pressure is intertwined. From January to June 2019, the retail sales of clothing, shoes and hats, and knitwear and textiles above the designated size nationwide increased by 3.0% year on year, down 0.3 percentage points from the first quarter of 2019. The national textile and clothing exports reached US $124.231 billion, down 2.37% year on year. All kinds of signs show that the cotton market has really entered the "cold winter" season.

As a market bellwether, Guochu Cotton also echoed in this round of decline of Zheng Cotton. The trading volume and price fell together, and the enthusiasm of the industry for auction and storage was greatly reduced. On August 5, China Reserve Cotton Management Co., Ltd. planned to list and sell 10000 tons of reserve cotton out of the warehouse, with an average transaction price of 11974 yuan/ton, down 374 yuan/ton from the previous trading day, or 13500 yuan/ton for 3128B, down 119 yuan/ton from the previous trading day. Due to the sharp decline of Zheng Mian Futures, spot resources at the spot price also fell to a low level, and even the price of some low strength Xinjiang cotton was flat with the reserve cotton. More importantly, there were few downstream inquiries, and commercial enterprises were waiting to see.

Looking at the current market, the upgrading of Sino US trade relations has had a huge impact on the cotton market, but the current stability of the external market may restrict the decline of Zheng Mian. In addition, attention should be paid to the changes in the weather in cotton planting areas, and there are still variables in national policies. It is suggested that the operators should be cautious in their operations, so that they are not easy to catch up.