Cotton futures market :China spot cotton sales better than Apr amid the macro regulation

In early and mid-May, Zhengzhou cotton futures market moved up and then fell down. During the period, the State Council of China voiced to pay attention to the fast rise of commodity price on May 12 and May 19. The cotton futures moved lower. Besides, the weather condition in Xinjiang was also unstable, heavy wind in South Xinjiang around May 12, hail in South Xinjiang around May 14 and cold air in North Xinjiang around May 19-22. Since May, cotton yarn and cotton grey fabric sales improve compared with Apr, and the spinners’ demand for cotton is also better. The whole fundamental remains good. Below is analyzed the cotton market situation in early and mid-May.

During May Day holiday (May 1-5), cotton yarn sales have turned better compared with Apr, and prices ticked up somewhat. Besides, the cotton futures market sentiment was relatively positive with the heavy snow in North Xinjiang in end Apr. On May 12, sand storm and gale appeared in Aksu and Bayingol Mongolian Autonomous Prefecture, mulch covered on the cotton crops was blown away. Some cotton crops were damaged and needed to be re-planted. Therefore, ZCE cotton futures surged. But later, CPI of the United States hit a new high since 2008 in Apr, and the anticipation of U.S. Fed to raise the interest rates strengthened. Meanwhile, the State Council of China required to take measures about the fast rise of commodity prices on May 12. ICE cotton futures declined with the rainfall forecast in Texas. Therefore, ZCE cotton futures moved lower on May 13-14. Later, cotton futures market has not impacted much by the bad weather in Xinjiang. On the night of May 19, cryptocurrency suffered panic collapse and the State Council pointed out again to strengthen the market regulation. The regulation of futures and spot markets will be better coordinated and targeted measures will be taken when appropriate to screen abnormal transactions and malicious speculations. Commodity prices moved lower generally, as well as cotton futures.

The major influencing factor on cotton prices in early to mid-May was the weather condition in cotton producing regions and macro policies. Viewed from the industrial fundamental, cotton yarn and cotton grey fabric demand has improved in May compared with Apr, and prices also ticked up. Even cotton futures slumped on May 13-14, downstream market sentiment has not impacted much. Cotton yarn inventory continued to reduce, and some varieties supply was tight. Part of spinning mills and fabric mills has orders filled till mid-Jun and early Jul. For spot cotton sales, procurement from spinning mills was thin in Apr, while on-call cotton sales were large on May 11, May 13-14 and May 19 when cotton futures declined, and spinners showed better buying interests. Therefore, the industrial fundamental condition was not bad.

With the larger price spread between Chinese and foreign cotton, imported cotton sales were better than Xinjiang cotton this week.

Though some market participants reflect that the end-user orders remain ordinary, and some demand is for replenishment in advance, cotton yarn and cotton grey fabric sales are relatively good, and product inventory is indeed reducing. The whole fundamental condition is relatively good. In medium-to-long run, cotton prices may move up, but currently, macro sentiment impacts much on the market and price spread between Chinese and international cotton is large, so the upward momentum is not strong in short.