Cotton futures traded on the Zhengzhou Commodity Exchange (ZCE) will find it hard to turn strong significantly in the short term as the gap between supply and demand in the domestic cotton market is not big.
Entering September, the new cotton in the year of 2015/2016 will embrace a harvest. Data shows that the new cotton output in Xinjiang, a main cotton producing region in China, will likely fall about 10 percent from a year earlier to 4 million metric tons (tonnes).
In the year of 2015/2016, new cotton output in other regions excluding Xinjiang is projected to reach 1.2 million tonnes and the country's imports of cotton are likely to fall to 1.2 million tonnes, according to market data.
The data of China Cotton Association shows that opening inventory of cotton in China is estimated to stand at 800,000 tonnes. Given the domestic cotton consumption in the previous year, the cotton consumption in the year of 2015/2016 is expected to stand at about 7.4 million tonnes.
Therefore, the gap between supply and demand will be about 200,000 tonnes. In the meantime, due to sluggish demand from downstream sectors, cotton prices lack a driving force. Under the circumstances of a slowdown in China's economic growth, the traditional textile industry is undergoing a stage of transformation and upgrading.
Last year, China scraped the policy of buying cotton for state reserves. Instead, it adopted the policy of offering direct subsidies, which means that the market will play an important role in directing cotton prices.
Despite the termination of state reserve policy, the ten-million-tonne cotton reserves are still clouding the market. With the new cotton available in the market, the ZCE cotton prices will be under pressure. Given relatively sufficient supplies, the ZCE cotton will find it difficult to buoy a lot.
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