ZCE cotton futures surge amid heavy snow in North Xinjiang

In early Apr, temperature in South Xinjiang was relatively low, with excessive rainfall, while the weather in North Xinjiang was relatively normal. However, the weather forecast of Xinjiang Uygur Autonomous Region Meteorological Service on Apr 18 showed that there would be blizzards in the mountainous areas of Ili Kazak Autonomous Prefecture, Urumqi and Changji from the night of Apr 20 to the night of Apr 23, and the temperature in Tarbagatay Prefecture, Shihezi, Urumqi and Changji will drop by 8-10℃. Cold waves and frost will appear in the plains. From Apr 24 to Apr 27, the temperature will maintain low in North Xinjiang. Snow has appeared in North Xinjiang on Apr 22, and the heavy snow on Apr 23 covered the most areas of North Xinjiang. It is the crucial sowing and development period for cotton crops in North Xinjiang in late Apr. Under the impact of weather condition, Zhengzhou cotton futures surged on Apr 23, and the major contract, Sep contract, once hit 15,975yuan/mt.

Looking back on Apr, after the concerns over the Xinjiang cotton issues disappear gradually, Zhengzhou cotton futures market has been flat and range-bound before mid-Apr. After the Tomb-Sweeping Festival (Apr 3-5), cotton yarn sales improved somewhat, but the improvement was not obvious. The looking-on mood still covered on the market. Moreover, spinning mills have replenished much feedstock previously, so they only procured for pressing demand before mid-Apr. Trading volumes declined obviously from Mar. With the digestion of cotton inventory for more than half a month, part of spinning mills has seen the cotton inventory down to one month or below one month. Therefore, from Apr 20, some spinners began to purchase feedstock, leading to improved inquiries and purchases for spot cotton. Around Apr 16, the demand for cotton yarn 40S in Nantong market gradually strengthened, and the price increased. Although the market remained sluggish in Guangdong market, the overall situation of cotton yarn was still improving compared with the previous period, and cotton yarn inventory has not continued to accumulate. With the outbreak of the pandemic in India, market players pay high attention to the flow of foreign orders from India to China, which remains uncertain.

Under the condition with slight improvement cotton yarn market, on Apr 23, the snowy weather in North Xinjiang affected market sentiment, leading to the upswing of cotton futures. Of course, some market participants believe that it was the speculation on weather influence, and the actual influence remained not large. Like the crop year of 2018/19, the strong winds in Xinjiang were heard to be affected the crop development, but finally, the Xinjiang cotton production was assessed at 5.20 million tons, up about 3.4% year on year. However, according to our analysis, the weather influence this time should not be underestimated. The snow and frost has direct influence on the crop. Besides, it is a crucial period for cotton crop to sprout, and the re-plant will also prolong the growing period. The weather and sowing condition in Xinjiang still need to pay high attention. Currently, cotton yarn profit and sales are tolerable, but grey fabric market orders are dull. With higher ZCE cotton futures, whether the downstream market will follow remains questioned.