The Impact Of Cotton Price Fluctuation On Textile Enterprises

From 2010 to 2011, the spot price of cotton futures fluctuated greatly, and the textile enterprises had been experiencing the double days of grief and joy. The profit margins rose sharply during the period of the sharp rise in cotton prices. At present, the operation of the textile enterprises is facing great difficulties. Many enterprises think that the difficulties are serious during the financial crisis of 2008.

1. market trend review

The first rise: in the first half of 2010, cotton prices were generally relatively stable, with a slight increase. At the beginning of the year, spot prices were in the range of 15 thousand to 16 thousand yuan / ton, and with the continued tightening of supply and demand,

However, before the new flower listing in 2010/2011 in August, the market gradually recognized the reduction of cotton production and gradually expanded the supply and demand gap in the new year, and the market began to start.

In this round of rising prices, cotton prices broke through a 10 year high of 18300, and rose 80% in just two months, while the 1105 contract reached 33720 yuan / ton in November 10, 2010.

The big rise in the US cotton market is also before the launch of new flower. The main reason is still the demand and supply side. Under the background of domestic cotton production reduction, the demand for us cotton has increased, and export demand has pushed up the price of US cotton.

Since the beginning of September, the US cotton main contract has risen from 84.84 cents at the beginning of the year to 153.61 cents at the end of November.

The first fall: in November 2010, the upland of cotton city faced the pressure of macroeconomic and policy regulation, and the price fell sharply. In the short 15 trading days, the price of the main 1105 contract period fell to 24170 yuan / ton once.

US cotton has been greatly affected by the sharp fall in domestic price, and the price has also been sharply adjusted. The main contract dropped to 110 cents / pound from the highest 150 cents / pound in early November, but after the adjustment, the US cotton rose rapidly.

The second rise: when the price reached the adjusted low level at the end of 11 in 2010, the spot market paction was severely suppressed. However, the market paction parties continued to be optimistic about the cotton market this year on the basis of the difficult domestic gap in 2010/2011, especially after the recovery of the industrial chain after the Spring Festival. The price began to rebound, and the cotton price reached a new high in 2011 and February, and the main 1109 contract reached a historical high of 34870 yuan / ton.

Driven by China's demand for cotton imports, the US cotton price has also gone up sharply, extending its strength in the late 2010, reaching a record high from 2 to March.

At that time, the main contract in July brought about a high price of more than US $2 in the history of the United States and cotton.

The second fall: after the price reached a new high, the inhibitory effect of high cotton prices on demand began to appear. Zheng cotton began to oscillate downward after its peak in February and has been in a downward channel since then.

As of June 30, 2011, the main contract price of zhengmian 1201 contract fell to 22285 yuan / ton, or 35%.

Although the price of Zheng cotton began to decline, the US cotton price remained strong for a long time. From late February to early April, the United States cotton has been in a trend of oscillating consolidation. The market thinks export demand is still strong, supporting the high cotton price.

However, since March, from the US cotton export sales report, a large number of US cotton contracts have been cancelled, and the high price of US cotton has finally been difficult to sustain. Since April, it has fallen all the way, and has fallen to nearly 1 dollars in July.

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2. comparison of spot and futures in historical market

Looking back at the price performance of cotton spot market in 2010, China's cotton price 328 index rose from 14879 yuan / ton in the beginning to 31281 yuan / ton in November 12th, or 110.24%.

CotlookA (FE) rose from 78.45 cents / pound at the beginning of the year to the highest price of 172.4 cents / pound in November 10th, or 119.76%.

C32S rose from 21130 yuan / ton at the beginning of the year to the highest price of 42400 yuan / ton in November 15th, or 100.66%.

The purchase price of seed cotton rose from 4.11 yuan / Jin, which was just opened, to 7.06 yuan / Jin in November 10th.

Subsequently, with the adjustment of the futures market, China's cotton price 328 index once adjusted to 26164 yuan / ton in December 1st, but after rising in the market demand, it rose to a high level of 31228 yuan / ton in March 10th.

In November, the adjustment rate of CotlookA (FE) was not large, the minimum adjusted to 140 cents / pound, but then rose sharply, rising to a historical high of 233.25 cents / pound in March 8th.

In the fall process, China's cotton price 328 index began to decline in March, reaching a low level of 19081 yuan / ton in August 23rd.

CotlookA (FE) fell to 110 cents / pound in 2011/2012.

From the trend of price spreads since 2004, we can see that the spot price has been below the price of zhengmian futures as of June 2010, but from June, the spot price began to appear higher than the futures price. In the middle of July 2010, the price difference once reached 1700 yuan / ton. The change of the current discount pattern indicates the change of the market structure, and the supply and demand situation in the spot market is beginning to show.

Since September, with the start of the futures market, especially since the main contract of futures is usually a forward contract, there is a need for a long-term premium. However, from the beginning of the market to the end, the current price spreads have been in a state of intense volatility, eliminating the impact of some futures long-term premium. During this period, the spot market still has a considerable leading role in futures.

Operation of textile industry from 2010 to 2011

From 2010 to the first quarter of 2011, the textile industry maintained a good momentum of operation, production and sales growth was significantly improved, the domestic market demand was strong, the prices of downstream yarn and cloth rose simultaneously, making profit earning ability further enhanced, and the export situation of terminal home textiles and garments was good.

But from the two quarter of 2011, cotton prices and cotton prices also plummeted as cotton prices fell at a high level, and market sentiment turned pessimistic.

As cotton spinning production needs cotton and some enterprises have deviations in the situation judgment, some enterprises have large stock of cotton cloth, and some yarn and cloth sales are not smooth, resulting in large inventory. In the whole market decline, enterprises turn from pre profits to losses, and even "vomit back the money they made last year".

1. textile industry's prosperity index

From 2010 to 2011, from the perspective of the whole textile industry, the overall operation was stable, and the prosperity index continued the trend of callback, but it continued to be lower than the national average level of manufacturing industry.

As of the third quarter of 2011, China's textile business climate index was 128.9, unchanged from the same period last year.

After the downturn in the fourth quarter of 2010 and the first quarter of 2011, the business index rose again.

The boom of textile industry in 2010 was mainly due to the strong demand and the positive effect brought by the increase in the initial price of inflation. However, after the crazy "cotton dance", the prosperity index of the textile industry declined, and the gap with the manufacturing industry widened. This also shows that the pressure of rising costs has not been fully pmitted to the downstream enterprises.

2. sales and inventory of finished products

The production and sale of cotton and cotton fabrics were observed. From September 2010 to March 2011, the production and sale rates of yarn and cloth gradually decreased, but they were at a high level, indicating that production and sales were relatively good.

The number of days in storage is increasing slowly in this process, but due to a relatively reasonable position, especially the low yarn stock, and the continuous rising of finished product prices, the cotton textile enterprises are reluctant to sell. The whole industry does not feel the pressure of cotton yarn and cotton cloth inventory.

However, with the change of market atmosphere, starting from April, the yarn stock has risen sharply under the continuous decline of production and sales rate, and the number of days of inventory has been rising. At the same time, as the price of cotton yarn and cotton cloth has dropped, the market has changed to a buyer's market, and the pressure of spinning enterprises has increased.

In order to return the funds, manufacturers began to increase the intensity of price reduction sales. The sales rate of yarn and cloth rebounded in 6 and July, but the inventory is still at a high level, and the spinning enterprises are still digesting the stock.

From the end of 8 to the beginning of September, the downstream market of textile industry was slightly warmer, coupled with the demand for replenishment of enterprises, the state of the pre market downturn continued to improve slightly, but it was only a flash in the pan.

According to the statistics of China Cotton Textile Industry Association, the yarn inventory of cotton textile enterprises increased 37.24% from 1 to September, and cotton cloth inventories grew by 31.54% over the same period last year.

Because the production and marketing is not smooth, most enterprises adopt the management strategy of "to sell the products", and strictly control the stock.

Since the three quarter of 2011, enterprises generally reflect the poor market environment and operating conditions. In order to stabilize employees, maintain normal liquidity and maintain normal production and marketing rates, a considerable number of enterprises have chosen a loss of money under serious shortage of orders, but small enterprises have shut down more.

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Impact of cotton price fluctuation on textile industry

1. the impact of fast rising cotton spot prices on cotton spinning enterprises

In the sharp rise of prices in 2010, cotton textile enterprises were booming in production and marketing, and the intensity of production was generally increased. However, the supply situation was still in short supply, and even the situation of pre paid goods and queuing up again appeared. Many cotton spinning enterprises reflected that this is a good market that has not been encountered for many years.

The sharp rise in spot price of cotton has different effects on enterprises, but generally speaking, the profits of enterprises in this process have increased substantially, mainly due to the increase of stock valuation and the rise of downstream manufactured goods prices.

In the rapid rise of cotton spot prices, enterprises are also facing some adverse effects.

First, the rapid rise of cotton prices will directly lead to a substantial increase in production costs, which will increase the risk of purchasing raw materials and the pressure on capital. Some of the underfunded enterprises will not be able to bear the cost of rapid growth. Second, the rapid rise of costs will affect the enterprises to undertake orders, especially in the rapidly rising market, which will affect the normal production arrangements of enterprises. Third, the profits of enterprises with poor pfer capability are severely compressed. If the increase of finished products is lower than the increase of cotton prices, the profits of enterprises will be severely weakened. Fourth, the financial pressure of enterprises will generally increase.

But compared with spinning, the benefit of downstream weaving is not optimistic.

The impact of cotton prices on all sectors is decreasing. Cotton yarn prices are lower than cotton prices, while fabric prices are lower than cotton yarn prices.

As the market demand is not synchronized, the demand for cotton cloth is relatively stable, cotton yarn price increases slowly to cotton cloth conduction process, cotton prices rise slowly, far below the increase of cotton yarn, weaving industry efficiency has dropped significantly.

If the contract signed between the weaving enterprise and the customer is earlier, it is easy to lose money when the cotton yarn price increases rapidly.

2. the impact of cotton spot price fluctuation on cotton textile enterprises

As cotton is the raw material of textile enterprises, under normal circumstances, enterprises will hoard some cotton to ensure the supply of raw materials, while the price of cotton will fall, and the price of cotton yarn will also fall.

Compared with the rising prices, the fall in prices will have a greater impact on enterprises. Not only will the value of cotton hoarding shrink, but textile prices will also fall, which means that profits will be reduced or even lost.

The sharp fall in cotton prices also affected the downstream orders. The general clothing factories and other middlemen bought or sold, but on the one hand, the enterprises did not dare to take orders. On the other hand, customers would rather pay compensation for breach of contract than order.

In the face of cotton prices like roller coaster prices, many enterprises began to increase the original amount of polyester instead of cotton, and the ratio of cotton to cotton decreased significantly.

In the big rise and fall of cotton raw materials, the most influential ones are the small and medium enterprises that are weak in risk resistance. Many enterprises stop or half stop. Some small weaving enterprises in Jiangsu and Zhejiang provinces have about 1/3 of the "holiday" in the three quarter, and some small factories simply start selling machines. Some other slightly better companies are "sticking to their teeth" and do not dare to stop easily because it is difficult to recruit workers in a short time after stoppage, and the supply and sales channels will be affected, and the difficulty of re construction will increase.

In the declining market, the profits of the cotton textile industry have shrunk dramatically, coupled with the national monetary tightening policy. Many enterprises have said that "the difficulties ahead must exceed the 2008 financial crisis".

It is worth noting that although many enterprises have judged that the market will continue to fall, but because of funds and management systems and many other reasons, enterprises have not taken effective measures such as futures market as a hedging tool to avoid the risk of falling prices of cotton yarn and cotton products in downstream products.

Sum up

The reason for the rise and fall of cotton futures is the change of spot supply and demand, and also reflects the trend of the price of goods.

The fluctuation of spot price has a great impact on the profit of cotton textile enterprises, but the impact of its fluctuation on cotton textile enterprises is different.

As a tool of risk management, cotton futures have a more guiding role in the spot market price, and more and more enterprises are concerned about their price changes.

Although the role of cotton futures in the process of spot price rise is not obvious, in the declining market, the risk management function of cotton futures has great room to play.

However, as far as cotton textile enterprises are concerned, they are not fully aware of the futures market and are worried about cotton products and cotton cloth.