During the state reserve cotton auction sales period, when the cotton import sliding tax quota is issued, and when the new season cotton growth is accelerating, why are the spot prices of cotton and cotton yarn futures rising together without fear of bad news? What is the mentality of various market entities, especially ginneries and textile companies? How will the cotton and cotton yarn market operate in the new season?
The price transmission in the industrial chain is smoother
In late June, Especially since late July, there have been constant reports that domestic cotton prices have formed an upward breakthrough trend. At the same time, cotton yarn prices changed from the small upward trend from June 20 to July 20. In late July, they began to follow the pace of rising cotton prices, and there were signs of “latecomers catching up”.
“Currently, a total of 600,000 tons of state-owned cotton reserves are sold through bidding every day, with a daily transaction rate of 100%, which has increased the effective supply of the market to a certain extent. More importantly, the sliding tax quota for cotton imports with a total volume of 700,000 tons has also been issued, and the demand side can freely purchase cotton from multiple bonded areas. In addition, due to rising temperatures and sufficient sunlight, Xinjiang’s cotton growth progress has accelerated. Cotton is developing well in many places. As the cotton market supply is increasing, domestic cotton and cotton yarn prices have risen instead of falling.” Yan Xu, a cotton trader in Aksu City, explained the reason to the Futures Daily reporter: First, although China’s The total output of new cotton is relatively optimistic, but the pattern of insufficient production and demand is still difficult to change. Secondly, the remaining amount of state cotton reserves is not large, and the regulatory power that can be used in the future is limited. Third, the rising costs have caused the prices of cotton and cotton yarn to lose downward space. Fourth, smooth price transmission, good spinning profits, and relatively sufficient orders have driven cotton and cotton yarn prices to new heights.
It is understood that on the eve of May Day this year, the National Development and Reform Commission issued an announcement on cotton import issues. It said that in order to protect the cotton needs of textile enterprises, it was decided after research to issue a certain amount of cotton import sliding tax quotas this year. The cotton import sliding tax quota issued this time is 700,000 tons, all of which are non-state trade quotas. Among them, 400,000 tons are limited to imports through processing trade; 300,000 tons are not limited to trade methods. Enterprises that have obtained quotas can choose and determine the trade method when applying for a quota certificate. Enterprises can apply separately for processing trade quotas or quotas that do not limit trade methods, or they can apply at the same time.
“Relevant agencies have a good grasp of market timing and announced relevant matters involving the sliding quasi-tax quota for cotton on the eve of the May Day holiday. On the one hand, this gave the market sufficient time to digest and think about this issue. time, on the other hand, it was at a point when the port cotton warehouse capacity was full.” The person in charge of a large textile enterprise in Shandong said that the announcement and issuance of the 700,000 cotton import sliding tax quota did not have a huge impact on the market. On the one hand, the quantity and time are in line with market expectations; on the other hand, domestic demand is strong, and appropriate imports and timely entry into the market have played a role in ensuring supply and stabilizing prices.
It is also understood that the state-owned cotton reserve with a total volume of 600,000 tons will begin bidding and sales on July 5 and is scheduled to end on September 30. So far, both the transaction rate and transaction price have increased, which has given rise to the sound of “selling higher and higher” in the cotton market. Industry insiders believe that the current total inventory of state-owned cotton reserves is relatively small, and overall it cannot have a large impact on the domestic cotton market, and future rotation operations are undoubtedly a potential benefit.
Zhang Guoqiang, general manager of Heze Hongyi Industrial Development Co., Ltd., told reporters that on July 29, the State Reserve cotton auction sales resources were 9,515.75 tons, with a transaction rate of 100%. The average transaction price was 17,504 yuan/ton, an increase of 222 yuan/ton from the previous day, and the price was 18,486 yuan/ton at a discount of 3,128 yuan, an increase of 152 yuan/ton from the previous day. Judging from the situation since the start of bidding sales, a total of 191,100 tons of cotton from the State Reserve were sold through bidding in July, with a total transaction rate of 100%. The average transaction price was 16,784 yuan/ton, which is 17,980 yuan/ton at a discount of 3128. Among them, textile companies bid The volume accounts for 46.32%. In addition, judging from the bidding sales from July 26 to July 30, the enthusiasm of market entities to participate in bidding has not diminished, the weekly average price has increased significantly, and the number of bids from non-textile companies has increased.
Yan Xu said that cotton in Xinjiang is currently growing well, and the increase in yield will, to a certain extent, make up for the negative impact of the decline in planting area on total output. In addition, the continued high temperature weather has alleviated the growth retardation caused by early low temperature freeze damage, but the overall growth and development progress of cotton is still later than last year. So far, the budding rate in Xinjiang has reached 100%, and the disease is relatively mild. Information from the National Cotton Market Monitoring System shows that China’s cotton growth survey started in mid-to-late June, with samples involving 15 provinces (autonomous regions), 50 cotton planting counties (cities, groups), and 1,895 designated cotton planting information contacts. According to the survey, cotton is growing well in most cotton areas across the country. The number of fruit branches has slightly increased year-on-year, the number of buds has decreased, and the number of bolls has increased. The expected large-scale picking time is normal or delayed. If the weather is normal in the later period, the country’s total new cotton output this year is expected to be 5.578 million tons, a year-on-year decrease of 6.3%, of which Xinjiang’s total cotton output is 5.017 million tons, a year-on-year decrease of 4.5%. According to the China Cotton Association’s June survey on cotton sowing and growth across the country, the national cotton planting area was 43.4559 million acres, a year-on-year decrease of 5.47%. The yield is expected to increase slightly, with the total output being 5.7218 million tons, a year-on-year decrease of 3.41%.
Zhang Guoqiang conducted an in-depth analysis of the change in the price relationship between cotton and cotton yarn from “hot at the top and cool at the bottom” to “flying together”. He believed that in recent years…, due to the increase in the number of gins, the method of purchasing seed cotton has also changed in recent years. In previous years, cotton farmers sent it directly to gins, but starting from last year, gins went to the fields to harvest. It is expected to be the same this year. In the past, cotton farmers with 1,000 or 2,000 acres of land were considered big households, but now, cotton farmers with 200 or 300 acres of land are also called big households. In addition, the market expects that the acquisition time of seed cotton will be shorter this year, with the peak of listing and acquisition being around 10 days.
Textile companies are operating well but risks still exist
Cotton prices are gradually increasing On the upside, and the opening price of seed cotton in the new season is expected to be higher, what are the thoughts of cotton downstream industry companies, especially textile companies? What is the current operating status of the downstream market?
Teacher Zhang is an old friend of the reporter. His team is carrying out business in Xinjiang such as seed cotton acquisition and processing, lint storage and trade, and cotton yarn production and sales. Since he has been working in the cotton and cotton yarn market for many years, he has a good understanding of all aspects of the cotton and cotton yarn industry chain and is very sensitive to subtle changes in the market and price trends.
“Recently, cotton prices have risen too sharply, and many textile companies have begun to hesitate in placing orders. Everyone feels that cotton prices are already on the high side.” Teacher Zhang told reporters that according to the progress of previous years , most textile companies have already arranged their orders until October, but this year, they have only received some orders for September. The reason is that tight cotton supply expectations and strong bullish expectations make textile companies believe that it is not appropriate to receive large orders now. Before late July, the domestic cotton and cotton yarn markets had been showing a “hot at the top and cool at the bottom” pattern, that is, the price increase of cotton yarn was significantly less than that of cotton, resulting in the compression of profits of textile companies. This means that before the price of cotton yarn rises significantly, if you take one more “cheap” order, you will have to bear more risks of making less money in the future. After cotton prices broke through the 17,000 yuan/ton mark, although spinning companies were profitable, they could no longer compare with before. In addition, due to the frequent epidemics abroad, the international market has a huge demand for my country’s cotton yarn, and there is no need to worry about no orders in the future.
“On the whole, textile companies have sufficient orders and considerable profits, but market risks still exist.” Mr. Zhang said that the focus of the market in the future will be on cost transmission. As long as high With cost downward transmission going smoothly and the pace of global consumption recovery continuing, it is conceivable that cotton and cotton yarn can fly together. However, the current cotton yarn inventory of traders is too large, and they need to be wary of the “trampled risk” caused by the selling of inventory at the yarn trade end. In addition, we need to be wary of whether consumption estimates are too optimistic. The current situation of my country’s textile industry is good, but it does not mean that it will continue to be good in the future. If the epidemic situation in Southeast Asia and other countries improves, orders may flow out, and the expansion of domestic production capacity will also pave the way for an increase in supply.
Bloomberg also believes that the overall profits of textile companies this year are quite good, but market concerns still exist. If there are signs of poor price transmission, the price of gray fabrics has not been able to rise. This means that the actual demand recovery has not been in place. Whether terminal demand can be substantially improved in the future is an important factor that dominates cotton price trends.
Some heads of textile enterprises believe that the current domestic demand is not strong, and the growth of external demand is the main driving force for the market of cotton and cotton yarn. Of course, this also includes funds, inflation, etc. factors, and it remains to be seen whether this series of external factors can continue to ferment. At the same time, the high price of cotton is also closely related to its by-products cottonseed and linters. In recent years, vegetable oil and meal prices have been rising, which has boosted the prices of cotton meal, cotton varnish and linters, and also given the confidence to increase cotton prices. In the long run, the core of market evolution will still be the consumer side.
After the prices of cotton and cotton yarn reach high levels, will they turn down or oscillate strongly? Bloomberg believes that this is not only related to actual downstream demand, but also related to the macro environment and epidemic prevention and control. Judging from the current economic situation, the probability of inflation is high in the second half of the year, currency circulation is accelerating, and economic recovery is expected to be strong, which will be positive for cotton and cotton yarn prices. However, there is still great uncertainty in global epidemic prevention and control.
In addition, Bloomberg said that new changes in the cotton industry chain are also worthy of attention. The participation in cotton supply chain finance is getting higher and higher, the entire industry chain business model has undergone revolutionary changes, and industrial enterprises have continued to deepen their use of futures and options tools. </p
