A huge amount of warehouse receipts, new cotton production, Sino-US trade war, the three major negatives in the cotton market still exist, but also in a good transition.

Market performance

Last week (October 29-November 2, 2018) Zheng Mian fell again, but suddenly increased on Thursday night due to signs that Sino-US trade relations may ease. If this is the case, then the 1905 contract can be involved in the long position in the investment area (15500-16000 yuan / ton).

Today's main 1901 contract closed at 15,115 yuan, a weekly increase of 55 yuan; 1905 contract closed at 15,860 yuan, a weekly increase of 20 yuan.

2. Influencing factors and analysis

Negative:

A huge warehouse receipt. The number of warehouse receipts has dropped again this week. As of November 1, Zheng cotton registered 8854 warehouse receipts, equivalent to 354,000 tons of cotton (compared to -0.86 million tons last Friday); effective forecast of 1146 (+ 491 last Friday). The decline in the registered warehouse receipts indicates that the current 1901 contract price has entered the low-price zone, and the market demand side is willing to accept the goods. Explanation: Futures prices have basically fallen to the bottom.

However, the number of Chen cotton warehouse receipts is still huge. If the warehouse receipts are reduced to less than 200,000 tons before delivery, the market pressure will be much reduced, and the bottom shape of the estimated futures price will appear. If most of the old warehouse receipts did not flow before the delivery; then all the pressure will be paid on the 1901 contract, and the bottom construction will last until January. It is foreseeable that the formation of cotton bottom will be a long process.

New cotton is on the market. According to USDA estimates, China's cotton production in 2010/19 reached 5.99 million tons! Higher than expected, unchanged from last year. In addition, the progress of domestic new cotton picking and sales is significantly lower than the same period last year. After the new cotton was listed, the cotton purchase price in Xinjiang fell. The current purchase cost of 3128B standard products is 15300 yuan/ton, and the corresponding 1905 contract price is 15500-16000 yuan/ton.

Finally, the Sino-US trade war. The key factor in the early stage of suppressing the market was the Sino-US trade war. Yesterday’s sudden news said that Trump and Xi Jinping had a friendly and constructive call. This laid a good foundation for the leaders of the two countries to meet at the G20 summit on November 30. If Sino-US trade relations go normal, then downstream cotton consumption will be restored. Otherwise, it will hit the garment export orders heavily.

Lido side:

The Lido factors are all speculated from a long-term perspective. First, the gap between production and demand is the driving force behind the rise. According to USDA data, China's cotton output in the year of 2018/19 was 5.99 million tons, and the consumption was 9.26 million tons. The gap between production and demand reached 3.27 million tons. As a result, there will be a large amount of consumption at the end of the year. Second, the national reserve stock needs to be replenished. This year, the National Reserve has thrown a total of 2.51 million tons; it is estimated that there are still 3 million tons left in stock. If you sell 2 million tons next year; then the national reserve is only 1 million tons. This requires sourcing from the market to replenish stocks. Finally, global supply and demand are in a tight balance, and ending stocks have also declined. According to USDA data, global cotton stocks have fallen from 23.39 million tons to 16.25 million tons in the past five years.

3. Conclusions and strategies

Perhaps the darkest fundamentals of cotton have passed, as the three bad ones have the potential to transform to the good side. Winter is the peak season for cotton spinning enterprises, which will be the first driving force of the market; if the national reserve replenishes the stock, it will enhance the market's upward momentum. Focus on the 1905 contract to build the bottom possible.

Yantai Liangcai Plastic Chemical Fiber Factory specializes in production: functional masterbatch, plastic masterbatch, standard monochromatic masterbatch, complex masterbatch, functional masterbatch, complex masterbatch, non-woven tester, meltblown non-woven Cloth machine, hydrophilic masterbatch, functional masterbatch, etc.