Analysis Of Hedging Opportunities For Textile Enterprises

Recent cotton market analysis

1. International market

This year's rainfall in the United States is mixed for all cotton producing areas. Rainfall in the central and southern parts of the United States is excessive, and most parts of Texas and southeastern parts of the country are short of rain.

From the present point of view, the US Department of agriculture forecast that the output of 14 million packages (3 million 50 thousand tons) is still expected to be achieved. If there is extreme adverse weather or the actual area is greatly reduced, cotton production will not reach the expected level.

Now the weather is good and bad in all parts of the United States, and the planting of other crops has been postponed. So this year's cotton production is hard to predict.

In the current year, the US cotton exports will reach the USDA forecast of 14 million 200 thousand packages (3 million 90 thousand tons), and the US cotton Zhou Pingjun volume must reach 75 thousand tons within the remainder of the year.

At present, US cotton exports to China are good, and from now on, we hope to continue to maintain, but once the price rises to 70-72 cents, demand will be significantly weakened.

The end of the year inventory and cotton stocks are too high this year, so cotton prices will not rise sharply unless there is a big problem in global production.

USDA has just cut down the global end inventory of 2008/09, but the global supply of cotton can still meet the demand.

For the cotton price trend, if the northern hemisphere cotton grows normally, the bottom price of the December 2008 contract is 75-76 cents, and the December contract is hard to exceed 83-84 cents.

In May 27th, most of the ICE cotton futures prices were down, and the contracts in recent months have closed below 70 cents / pounds for several consecutive days, and international spot prices have also been lowered accordingly.

On that day, the ICE cotton futures contract closed at 66.38 cents / pound in July.

The international cotton index (M) is 74.23 cents / pound. According to the 1% tariff, the import cost of RMB is 13363 yuan / ton, lower than the domestic standard grade cotton 557 yuan / ton, and the import cost calculated by sliding tax is also reduced to 13902 yuan / ton, the first time it is lower than domestic cotton price 19 yuan / ton.

2. Domestic market

Cotton enterprises are eager to sell cotton, and the progress of national cotton sales has been slightly accelerated. However, domestic cotton prices have not declined, indicating that textile enterprises' purchasing demand is gradually released.

Up to now, there are not many cotton lint resources left in the current year. Whether the domestic cotton prices will rise at the later stage, the trend of the next cotton price is very important for them.

According to the prediction of the national cotton market monitoring system, the domestic cotton output in 2007/08 is 7 million 748 thousand and 800 tons, an increase of 250 thousand and 700 tons over the previous year, an increase of 3.3%, a cotton consumption of 12 million 389 thousand and 100 tons, a gap in production demand of 4 million 640 thousand and 300 tons, and the national cotton market monitoring system predicts that China's cotton imports will reach 2 million 970 thousand tons in 2007/08 on the premise of enlarging the ratio of other sources of cotton and the end to end inventory consumption ratio.

Other sources of cotton cover the import of regenerated cotton and waste cotton, and take into account the market situation is a relatively conservative data; if the domestic yarn production of 20 million 922 thousand tons per year in 2007/08, consumption of 12 million 389 thousand and 100 tons means that the domestic comprehensive cotton ratio in this year is less than 60%, and is relatively conservative.

Under the above general conservative conditions, the national cotton market monitoring system predicts that the number of cotton imports in China in 2007/08 is 2 million 970 thousand tons.

From now on, even if this conservative cotton import quantity can be completed this year, there are still variables.

According to the General Administration of Customs of China, as of April, the total import of cotton was 1 million 588 thousand and 400 tons in 2007/08. This means that in the remaining 4 months of this year, China needs to import 1 million 381 thousand and 600 tons of cotton and import 345 thousand and 400 tons per month.

The import and final inventory are two data that can be adjusted each other. If the import task is not realized this year, the inventory consumption ratio will be further compressed this year, which means that the price rise may be pushed to the next year. If the import mission can be realized, it means that imports will surge, which may be a stimulus to the current cotton price.

In the coming month, the price trend of domestic and foreign markets and the changes in the surrounding market will not be optimistic about the cotton market, and the rigidity and uncertainty of the domestic spot price that can support the cotton price will remain.

Therefore, under the current market conditions, both sides of supply and demand need to be cautious in dealing with the trend of price in the later stage.

For the supplier side, on the one hand, it is necessary to do a good job of psychological preparation for the late price rise and avoid further erosion of the cost. This is the key point now. On the other hand, in view of the fact that the cost of warehousing has already been precipitated and the latter price is hard to fall, the textile enterprises are not actively buying, so we should try to avoid panic cutting.

For the demand side, the current focus is to make preparations for the late yellow Market and the possibility of a sharp rise in prices. Considering the domestic and foreign futures and matching markets and the return of the futures contract price to the low level, if we can make full use of the futures market to avoid price risks and raise the utilization ratio of funds, it will be a wise choice for spinning enterprises.