March Forecast: Cotton City Faces Direction Choice, Cautious Grasp Market Opportunity.

After March, cotton planting in spring is about to start, and the global production and demand in the new year is expected to be balanced. China's import of US cotton is pending, and the market is waiting for guidance on consumption and negotiation.

First, the global trade kinetic energy has weakened, and the manufacturing industry has declined collectively.

In February 2019, the global manufacturing PMI declined, and the US manufacturing PMI dropped from 56.4 to 54.2. The euro area, Japan and China had fallen below the 50 withered line, and export targets were weakening. The World Trade Organization (WTO) released the February 26th Global trade quarterly Outlook Index of 96.3, a new low since March 2010. In order to avoid risks and slow down investment and accelerate the completion of business layout, the consumption prospects of the enterprises in 2019 are still dim. In the face of the downward pressure on the economy, the government work report clearly states that the scale of tax reduction and reduction in 2019 will reach 2 trillion yuan, and release the major measures of both inclusive and structural tax reduction, deepen the value-added tax reform, reduce the tax burden of manufacturing and small and micro enterprises, reduce the current 16% tax rate of manufacturing enterprises to 13%, reduce the cost of enterprises, reduce the burden, and facilitate the transformation and upgrading of enterprises.

Two, global cotton production shortage situation is expected to improve

Cotton production and demand in the world tend to be balanced. According to the US Department of agriculture's prediction in March, the global cotton production decreased by 3.9% in the year of 2018/19, due to the adverse weather effects of the United States, India and Australia. The trade dispute brought the global consumption growth to 0.8%. This year, the global production demand gap narrowed from 1 million 500 thousand tonnes in September to 1 million 20 thousand tons. Support for cotton production was sluggish, and ICE cotton prices fell from 88 cents in early August 2018 to 75 cents in March 18th, down 14%. In the next year, global cotton is expected to turn to production larger than demand. The US Department of agriculture has initially predicted that global cotton production in 2019/20 is expected to grow by 6.9%, consumption will increase by 1.5%, and the annual average forecast of the A will be 80 cents, down 5 cents from the same period. It is expected that the situation of insufficient global production will be eased in the new year. If China buys a lot of American cotton and has a strong support for ICE prices, there will be no major changes in the global supply and demand situation.

Three, trade confrontation is a drag on global cotton consumption.

Affected by the Sino US trade dispute, the US cotton exports began to slow down in November 2018. As of the end of February, the actual shipment volume of US cotton in the current year was about 1 million 370 thousand tons, 120 thousand tons less than the same period last year, and 34% of the US cotton output. The actual shipments of the US cotton have decreased, except for the reduction in China's contract, which is also constrained by the existing logistics in the United States. As of February, India has accumulated about 540 thousand tons of export shipments, a decrease of about 5-15 tons compared with the same period last year. After Pakistan increased tariffs on India cotton, the escalation of India Pakistan conflict will further hamper cotton trade. Recently, Trump plans to end the main trade preferential policies for India and Turkey, which will affect India and Turkey's import of cotton to the United States, and the trade disputes between the United States and its trading partners, breaking the global cotton trade pattern and restraining consumption. In March, USDA data projected that the global cotton export trade in 2018/19 decreased by 3% over the same period last year. ICAC expects global consumption growth to be reduced to 0.04%. The price of international cotton yarn has dropped by nearly 14% since July 2018, and the negative effect of trade lagging effect on consumption will be further realized in 2019.

Four, domestic supply is still adequate in the medium and short term.

According to the monitoring system data, there were about 3 million 500 thousand tons of industrial and commercial inventories at the beginning of 2018/19, plus consumption in September, new cotton processing and listing, import and other factors. The consumption of domestic cotton industrial and commercial stocks was about 6 million 500 thousand tons (about 5 million 500 thousand tons of commercial stocks) in March 1st. According to the monitoring system purchase and sale data, as early as the beginning of March, the national lint sales rate was 45.3% (of which Xinjiang sold 44%), and there were about 3 million 380 thousand tons of new cotton for sale. According to the monthly average import of 170 thousand tons of cotton, without considering the factors such as the storage of cotton and other factors, it is initially estimated that by the end of May, commercial stocks in the domestic market will still be around 4 million tons. We can see that domestic supply is still adequate in the medium and short term.

Five, textile production and sales rate rises, exports suddenly drop.

With the domestic macro policy warming, consumption pessimistic valuation repair, to promote signs of short-term warming in the market. According to the monitoring system monitoring, in the early March, the yarn production and sales rate of the enterprises surveyed by the sample was 97.1%, up 5.6 percentage points, but still below the average level of 3 percentage points over the past three years, and the price of cotton yarn increased slightly. With the help of the Sino US trade easing period, the company strives for market opportunities, but the lagging effect of Sino US trade friction is constantly emerging. In January, the export of textile and clothing showed double positive growth because of "grab the export", but in February, the export of textile and clothing decreased by 35.72% compared with the same period last year, and the growth rate was below the low point when the financial crisis happened in 2009. With the delay in tariffs between China and the United States, textile and garment foreign trade may become stable after March, but the economic downturn will drag domestic and foreign demand on the whole.

Six, other factors that need attention.

The window of the weather speculation is approaching, and we must guard against over interpreting the good Sino US negotiations. The recent Sino US trade negotiations are moving towards a moderated trend, which is conducive to stabilizing market confidence. With the approaching of cotton growing season, weather factors may become the subject of market speculation. However, there are still many uncertainties in Sino US trade negotiations, and there is no incentive to continue to support cotton prices. Even if there is speculation in the weather, the space for cotton prices to rise is still relatively limited.

India's lowest purchase price is expected to rise again. The lowest target of Cotton Corp acquisition in India this year was 255 thousand tons, and by the end of February, it had only completed 2/3 of the acquisition target. Following the India minimum purchase price (MSP) increase of 26% this year, a number of agencies including India, the Cotton Corp which have implemented the lowest takeover, recently proposed to increase 10-15% MSP in 2019/20 MSP, which is expected to provide support for the international cotton price again in India.

Seven, domestic cotton production and marketing forecast

The main changes in the forecast of production and demand this year are as follows: export volume increased by 21 thousand tons to 36 thousand tons in 2017/18, ending 21 thousand tons to 6 million 600 thousand tons. The export volume increased by 25 thousand tons to 46 thousand tons in 2018/19, the import volume increased 18 thousand tons to 2 million 40 thousand tons, and the final stocks were reduced by 28 thousand tons to 6 million 274 thousand tons. Please refer to the table below.