China Cotton Market Monthly Report (Forecast for March 2020)
——China Cotton Market Monthly Report (March Forecast)
The COVID-19 epidemic continues to spread abroad, market panic has intensified, and global economic growth expectations have been significantly lowered. Countries have cut interest rates to cope with the impact of the epidemic, but the effect is still not obvious. The outlook for global cotton consumption is worrying, and the downward pressure on cotton prices will not diminish, and will continue to remain weak until the epidemic situation improves. Spring sowing of cotton in the Northern Hemisphere is about to begin in full swing. The current downturn in cotton prices has led to a high possibility of a decline in cotton planting area.
1. The epidemic continues to spread and economic expectations are lowered
As of 12:00 on March 12, the COVID-19 epidemic has covered 120 countries and regions, and the number of confirmed cases has exceeded 120,000. Except for China, a total of 43,787 cases of COVID-19 have been diagnosed in 119 countries and regions. The World Health Organization stated that the COVID-19 epidemic has the characteristics of a global pandemic, casting a heavier shadow on the world economic prospects. The Organization for Economic Cooperation and Development (OECD) predicted in early March that if the epidemic spreads widely in Asia, Europe and North America, global economic growth this year may drop to 1.5%, which is only half of the expected growth rate before the outbreak. At the same time, the International Monetary Fund (IMF) will also reassess global economic growth. The world economy may be facing the biggest threat since the Great Depression, and the possibility of triggering a crisis in industries in fragile economies cannot be ruled out.
2. The effect of interest rate cuts is limited and panic persists
In response to the impact of the epidemic, various countries have also launched an “anti-epidemic” economic defense war. In early March, the Federal Reserve lowered interest rates and excess deposit reserve rates; central banks in Australia, Canada, Malaysia and other countries followed suit with interest rate cuts; China’s central and local governments also introduced a series of economic policies to stabilize the economy. So far, the new round of stimulus policies has not been effective. Moreover, before the outbreak of the epidemic, the central banks of major countries had very little room to cut interest rates, and the world economy was already in an overall decline. The Federal Reserve’s interest rate cut failed to calm market panic. U.S. stocks, which represent the global stock market’s vane, plummeted. The circuit breaker mechanism was triggered again in more than 30 years, and the CRB price index fell to its lowest point since 1994. Before the global epidemic reaches an inflection point, the possibility of another panic market cannot be ruled out.
3. The prospect of cotton consumption is worrying, and cotton prices continue to remain weak
The epidemic has caused domestic textile companies to delay the start of production and orders, and textile and clothing exports have experienced a sharp decline. According to customs data, my country’s textile exports fell by 19.9% year-on-year from January to February 2020, and clothing exports fell by 20%. According to customs data, the total value of China’s clothing exports to Italy, South Korea, Japan, France, Germany, the United States, Spain, the United Kingdom, Australia and the Netherlands in 2019 was US$76.6 billion, accounting for 55% of China’s total clothing exports. At present, the epidemic situation in these 10 countries is accelerating. In addition, experts predict that the foreign epidemic may not end until June this year. This has a negative impact on China’s clothing exports and cotton consumption. In addition, China is one of the important links in the global textile industry chain. The COVID-19 epidemic in China has caused some textile factories in major countries such as India, Pakistan, Bangladesh and Vietnam to be unable to produce normally.
Affected by the epidemic, the United States Department of Agriculture’s latest global cotton production and demand forecast has lowered global cotton consumption in 2019/20. The details are as follows: Global cotton production in 2019/20 is 26.474 million tons, an increase of 57,000 tons from the previous month, and consumption 25.727 million tons, a decrease of 185,000 tons from the previous month, and production exceeded demand by 747,000 tons. The global cotton ending inventory-to-consumption ratio was 70.58%, a new high in the past four years. The ending inventory in markets outside China exceeded 10 million tons, reaching 10.648 million tons, a new high in the past five years.
Since the outbreak of the epidemic, global cotton consumption expectations have dropped significantly, market confidence has been frustrated, and cotton prices have fallen both at home and abroad. The main contracts of ICE cotton futures and Zhengzhou cotton futures fell below the integer mark of 12,000 yuan/ton and 60 cents/pound on March 12 and 13 respectively. Until the epidemic situation improves, cotton prices are expected to remain under pressure and remain weak.
IV. Pay attention to spring sowing and purchasing and storage, and wait for variables to appear
The expected decline in global cotton planting area and the rotation of domestic cotton reserves will restrain the room for cotton price decline. Spring sowing of cotton in the Northern Hemisphere will be carried out in March and April. On February 21, the United States Department of Agriculture forecast that the global cotton planting area in 2020/21 is expected to be 33.1 million hectares, a year-on-year decrease of 4%. Considering the current cotton market, it cannot be ruled out that the global cotton planting area is expected to further decrease, which may have a certain supporting effect on cotton prices. In addition, weather changes during spring sowing are also one of the main factors causing cotton price fluctuations and deserve close attention. The rotation of cotton into the central reserve will end at the end of March. During this period, the rotation of cotton reserves will also have an impact on domestic cotton prices. In recent trading days, domestic cotton prices have fallen rapidly, which may lead to an increase in the amount of cotton reserves.
5. Domestic cotton production, sales and inventory forecast
The current production and demand forecast reduces the consumption in 2019/20 by 295,300 tons to 7.1336 million tons, which is equivalent toThe ending inventory was increased by 295,300 tons to 6.2054 million tons.
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