Cotton'S Crazy Rise Will Not Fluctuate Much After The Callback.

Recently, Zheng cotton index has been on the low side after a record high of 17740 yuan / ton, and broke the 60 day moving average.

The reasons for this fall can be summed up in three points: first, the market is worried about the global economy, especially the European economic slowdown; second, the state's action to crack down on farm product price speculation has played a strong psychological deterrent effect on the market; third, technically, this market is a callback arrangement for the previous crazy rise.

However, cotton fundamentals remain unchanged, and supply will remain tight.

First, the gap between supply and demand has increased, and the inventory consumption ratio has dropped further.

In recent years, owing to the low and unstable planting income and no government subsidies, the cotton planting area in China is difficult to increase in recent years.

According to a survey conducted by the China Cotton Association, the cotton planting area in the 2010/2011 has increased by only 0.17% over the previous year.

However, cotton consumption has gradually recovered after the financial crisis, and China's cotton supply and demand gap is expected to reach 3 million 484 thousand tons in 2010/2011, the largest since 2006.

Affected by the recovery of world economy and the high price of cotton, the USDA report in May showed that the global cotton production in 2010/2011 has resumed growth, which is expected to reach 24 million 796 thousand tons. In the same period, the global cotton consumption is expected to be 25 million 927 thousand tons, and the gap between supply and demand is 1 million 131 thousand tons, which will be a continuous fifth year shortage.

Demand is greater than supply, which will further reduce the end of world cotton stocks. It is estimated that the world cotton inventory in 2010/2011 is 10 million 915 thousand tons, the lowest level in nearly six years, and the inventory consumption ratio will drop to 42.10%, the lowest since 1996.

Two, the international and domestic two markets are more closely linked.

According to the sliding duty tariff rate, the Cotlook A index is converted into the domestic port price. It is found that domestic CC Index 328 cotton price fluctuation is larger than that of Cotlook A index.

Further data analysis shows that the discrete coefficient of the Cotlook A port price is 7.61%, far below the discrete-time coefficient of 11.41% of the domestic CCIndex328.

Since January 2007, the price of domestic market has been gradually increasing. The monthly average price difference is 191 yuan / ton, far less than the monthly average price difference of 2003 yuan to 2006 1591 yuan / ton, and the correlation coefficient of two markets has increased from 86.50% of 2003 to 2007 to 90.82% of 2007.

Since May this year, the Cotlook A index has stood 90 cents per pound, and ICAC expects the average annual price of 2010/2011 to be 85 cents / pound.

Affected by this, domestic prices will remain high.

Three, the global economic recovery has increased the export of textile and garment industry.

In 2010, the world economy as a whole continued the trend of good recovery in 2009. The UN's May report predicted that China's economic growth rate in 2010 was 9.2%, and world economic growth would reach 3%.

The domestic textile industry is running well and exports continue to increase.

In April, the added value of the textile industry increased by 12.2% over the same period last year, while the export volume of textile and clothing reached 14 billion 550 million US dollars during the same period, and exports to Europe and the United States increased significantly.

Consumption is also continuing to grow. From 1 to April, total retail sales of consumer goods totaled 47884 billion yuan, up 18.1% over the same period last year.

It should be said that China's recent textile and foreign trade and domestic sales environment is basically good.

The negative factor came from the European sovereign debt crisis. The euro area's unemployment rate in April was 10.1%, the highest in 12 years.

Exports to Europe account for 21.6% of China's textile and clothing exports. If the euro area economy deteriorates, it will seriously affect the export of China's textile and garment industry.

Four, cotton spinning enterprises are facing different pressures.

Since January 2009, the profit margins of cotton spinning enterprises have been gradually expanding, and the price difference between C32S cotton yarn and CC Index328 has expanded from 5139 yuan / ton to 9287 yuan / ton in May 2010.

However, most textile enterprises are facing heavy pressure.

37.3% of China's textile enterprises have created 94.2% of the profits of the whole industry, with an average profit margin of 7.58%, while the average profit margin of the remaining 62.7% enterprises is only 0.1%.

The bargaining power of enterprises with low profit margins is weak, so it is difficult to pfer higher production costs.

At the same time, rising labor costs forced some textile orders to shift to cheaper Southeast Asian countries or regions.

For most textile enterprises, the rising price of raw materials and rising labor costs will reduce their already small profit margins.

Recently, because of the high cost of production brought by the rising prices of raw materials, many textile enterprises even hesitate to give up the order compression production.

Five, the appreciation of the renminbi is expected to bring long-term concerns.

The impact of exchange rate on textile enterprises is mainly reflected in two aspects.

First, under the direct quotation method, the rise of the RMB exchange rate has reduced the income of textile enterprises to RMB.

Second, the rising exchange rate has weakened the export competitiveness of textile products, resulting in many orders flowing to Southeast Asian countries.

Historical data show that since the reform in 2005, the increase in textile exports by Renminbi is less than that under the US dollar.

According to the annual average exchange rate, the textile export growth rate of US $2008 and 2009 in the US dollar is 7.98% and -9.65%, while the export growth rate of RMB in the same period is -1.31% and -11.22% respectively.

Six, the impact of national macro-control policies varies.

In 2009, the state put forward in the "textile industry adjustment and revitalization plan" that by 2011, enterprises above Designated Size could achieve an industrial added value of 12000 billion yuan, an average annual growth rate of 10%.

At the same time, the textile industry should continue to optimize its industrial structure, raise its technological support level and eliminate backward production capacity.

In May 28, 2010, the Ministry of industry and Commerce issued the task of eliminating printing and dyeing 3 billion 130 million meters this year.

From these policies, we can see that China's textile industry is in an adjustment period. Changing the mode of economic growth and adjusting the industrial structure will be the focus of future work. Eliminating backward production capacity is a means to achieve this goal.

Most textile enterprises in China are small and medium-sized enterprises, lacking bargaining power. In the short term, there is no sufficient capital to upgrade the industrial structure, and profit margins will be squeezed. Policy adjustment in the short term will have a certain impact on the textile industry.

Overall, China's cotton textile enterprises are facing resistance factors such as pformation and RMB appreciation expectations, but domestic cotton planting is hard to increase, and supply and demand gap will be further enlarged.

Despite the resumption of global cotton production, the world economic recovery has pushed cotton consumption to more than production and the world cotton inventory consumption ratio will decline further.

On the whole, domestic cotton spot prices will remain high in 2010/2011, and Zheng cotton will return to high level after adjustment.