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Expected and unexpected slump on ZCE cotton futures
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Expected and unexpected slump on ZCE cotton futures

Views:1     Author:Site Editor     Publish Time: 2019-07-24      Origin:Site

Zhengzhou cotton futures market hits the down limit on July 9, and there is no great bearish news temporarily. In short, the decline of cotton market is expected to see, but the down limit is beyond our anticipation. From last week, the demand for cotton from downstream is in a very slow recovery, and transactions reduce. The previous improvement is supposed to be the speculative demand after the Sino-US top level meeting during G20 Summit. Cotton inventory remains at a high level, weighing on cotton market.

Feedstock from market players
1. Ginning factories
Ginners were active to sell, but trading volumes were limited, so the capital pressure was seen gradually as the inventory occupied the capital, and loans needed to be paid. It is the peak season to pay loans during July and August, and moreover, there is still competition from the imported cotton and reserved cotton. T herefore, the capital pressure for ginners is seen. Nevertheless, the pressure is not great as anticipated, as large ginners’ loan can be prolonged somewhat. But for small ginning factories, there is indeed the capital pressure. Of course, some ginners have cut prices to promote sales, but the sell-off is disperse and scattered. So, the sharp decline is not caused by the ginners.

2. Traders
Traders are the major physical cotton holders currently, and there are two transaction modes, traditional fixed price basis, and the on-call. Besides, traders also do hedging to have profits. Their operation is relatively flexible. Prices of cotton at fixed price basis are stable to decrease, and on-call cotton is the major transacted one.

3. Spinning mills
From mid or late June, mills continue to procure cotton on need-to-basis, as yarn orders and sales have not improved much, so the demand for cotton is mild. Spinners that produce conventional cotton yarn are inclined to use reserved cotton. The volatile cotton market is not good for them to procure large quantity of cotton, in face of depreciation risks.


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