After the National Day holiday, amid the favorable macro sentiment, Chinese cotton prices show strong upward momentum stimulated by the output reduction anticipation in North Xinjiang and rush harvests of seed cotton in both North Xinjiang and South Xinjiang. ZCE major cotton contract has climbed up by more than 1,000yuan/mt and spot cotton prices also move up by 600yuan/mt.
In October, the transactions were mainly among ginners and traders, and traders showed high buying interests on new cotton, while the procurement from mills was bleak. With flat cotton yarn sales, mills only procured slightly more feedstock.
During the week from Nov 4-8, purchasing volumes of mills improved somewhat compared to the prior week. According to ginners and mills, more mills entered Xinjiang to procure new cotton, and sales increased somewhat. But mills only operated safe accumulation, and had no plan to purchase much. A few large mills increased the feedstock inventory from 45 days to 90 days, while most mills only last the feedstock inventory at 15-30 days. Some mills even stopped purchasing after cotton prices moved up. In general, mills lack confidence towards late market, and downstream grey fabric market has shown signs of weakness, so cotton yarn sales are restricted, and mills show lower buying indication.
According to current ginning and inspection progress, ginning volumes of new cotton are about 3.62% lower than the corresponding period of last year, and inspection volumes decline by 5.02%. The data shows not large output reduction. For spot cotton, some ginners say that about one third and a half of new cotton has been procured by traders and large mills. Meanwhile, due to strong upward trend of ZCE cotton futures previously, some on-call cotton at traders’ hand is locked. Therefore, the available supply of new cotton reduces in short. However, mills lack confidence towards late market, and show no high buying interests. For the feedstock replenishment before the Spring Festival holiday, many mills say that they will reduce the purchasing volumes.
From the prospective of the fundamental, in the long supply, the cotton inventory is much higher than the corresponding period of last year, while downstream mills purchase feedstock cautiously, and demand is supposed to be weaker. The fundamental remains weak. If there is no big stimulus, cotton prices are likely to weaken. If the external factor stimulates the ZCE cotton futures market up, on-call cotton is locked, leading to supply shortage, cotton prices may move up.