Chen Shuwei, Director Of China Securities Futures Research Department, Commented On Cotton Prices This Year.

April 27-28, 2012

To make the above judgement, Chen Shuwei is mainly based on the following aspects: first, firmly believe that China's monetary policy, whether the government accepts or not, must turn to mild or loose, just how big the scope of easing is.

Second, from the aspect of textiles, the data of China's textile industry are slightly improved both in the ring and the year-on-year terms.

Third, look at

In terms of specific operations, Chen Shuwei said that buying and selling can be done on the whole spot, but it should be done 2 or 3 times instead of simply doing it. It depends on whether the market is in trend or the market is oscillating. If it is oscillation, you have to do it several times.

The following is a record of the speech:

Chen Shuwei: first of all, I am very glad to have this opportunity to communicate with cotton futures market.

The leader of the company gave me this assignment, and what do I want to say when I come here?

There is a lot of controversy in the cotton market now.

After the listing of cotton futures, there should be exponential hedging, but in the market of cotton development, the entire textile industry is still affected by price fluctuations.

So I was thinking about it.

Why is there such a market, the industry will be affected so much? So when I communicate with our colleagues, I want to say that we should manage futures in the way of project management. We should make futures as a business to do well in this market.

One of my colleagues said, "I don't seem to know how to say this, so I want to apply the fashionable words now.

Zhang Jun, our information center, told us that if we do not carry out the whole theory, we will add the concept of two word period integrated business philosophy, and this topic will come out.

The whole country's management system can not be explained in detail, because the domestic regulatory system does not allow us to carry out actual operations, so I will explain to you as far as I can understand, hoping to play a role of throwing bricks, so that everyone can operate very well in the futures market in the future.

Since futures originated and developed to the present, it is a risk management tool instead of simply avoiding price risk.

Why do we think about the bad use of enterprises? First of all, we should use this thing first to understand what problems an industry or an enterprise is faced with first. What risks are there? What are the risks? Is it mainly price risk? From the point of view I consulted originally, there is such a regulation that there are four stages in the development of the general industry. China now grows from the state, including many other industries, especially the cotton industry, to the middle pition period of the shuffling period.

With growth and subdivision, some of the high-end may have entered a further shuffle stage.

Overall, it did not enter maturity.

Without entering maturity, the risks faced by the whole industry are intensifying.

The increase of risk is not only the price change of the whole business, but also from the low price operation and price change. There is also an increasing demand for mergers and acquisitions, restructuring and reshuffling. The demand for capital investment is also very large, and the risks it brings are relatively large.

Another, in such a shuffle process, the profits of enterprises and industries are being compressed, which will also bring risks to profits.

Plus, now that China is not only facing the growth and shuffling stage of the domestic industry, it is also faced with the problem of restructuring and re establishing the whole textile industry in the world from the perspective of the whole world's cotton spinning pattern. That is to say, with the gradual disappearance of the demographic dividend, the labor cost has gradually increased.

But these rising stars in Vietnam and India are now much cheaper than China, so the cotton spinning industry also has the same process of pferring India and Vietnam.

Therefore, China's cotton industry is facing the domestic shuffling stage, and from the international perspective, it also faces international competition and shuffling.

So the whole industry is actually in a risk expansion area.

In this way, enterprises are faced with the whole management risk, and not simply manage the price risk of raw materials or products. It should be from the risk of capital, scale and market and so on. It is the concept of integrated risk management.

In this case, the substantial fluctuation in the whole commodity should be manifested in 2003 and 2004.

But the discovery of the US debt crisis in 2008 has further widen the price range of commodities, causing the risk to expand further.

In particular, cotton has the largest fluctuation.

China's cotton textile industry has been badly hit.

The main problem is that the impact of this round is relatively large, mainly because China's cotton and world cotton have not fluctuated in such a big way in the past.

Under such circumstances, every time the price rises, enterprises will rush to buy cotton. I will speed up the procurement process and further push up the price of cotton, but I think the enterprise is still more rational.

But this round of rising enterprises use futures market is relatively small, instead of buying cotton raw materials in the spot market, leading to the damage to enterprises is mainly affected by high priced cotton stocks, which will affect their subsequent production and profits, which has a relatively large impact.

In September of last year, cotton prices had dropped to about 20 thousand to 22 thousand. When I was talking with some enterprises, more than 30 thousand of his cotton was still placed in the Treasury.

He said that the money earned in the three years of operation was lost because he bought cotton this year and earned 3 years of money. So he thought the risk was very large, so he had to make use of the futures market, but he did not know how to make use of it, so he was more blind.

This is a problem. Why should I enlarge the risk brought about by the regulation of the industry? Because at the beginning of the price rise, when the fluctuation is relatively small, it is not only the raw material price of the enterprise, but also the scale of operation, the scale and profit of the enterprise are relatively small, and the enterprise can be relatively stable and normal operation.

But when the capital rises to a relatively large extent, but the market has not yet come out of the stage, the scale of the business should still be maintained.

However, the demand for capital has increased a lot, so that enterprises are facing price risk. In fact, the risk of capital demand and whether the funds can meet the subsequent market risks are increasing.

Profit is not great at the middle of the rise, but the risk of shrinking profits or losing money has been hidden.

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When the price goes up, a large number of enterprises are forced to reduce their scale of operation and the scale of funds is rapidly enlarged. Many enterprises have problems of cash flow, and losses appear. Hidden risks are exposed at this time.

The key is that the impact of this wave on the industry is that the conversion is too fast, and this trend is very short.

At first, it seems that the price has been adjusted there. It seems that the risk of turning down is not very obvious.

Therefore, many enterprises, such as stocks, do not seem to feel the risk of inventory, or are relatively stable.

But in the end, there was no loss. The companies that maintained the profits felt that they were ok because they could still maintain a certain profit at such a high price and had not yet realized the risks.

When a downtrend occurs, the risk is completely exposed.

The lower the price, the less you sell, and the price is seriously depreciated, that is to say, the whole industry's deficit continues to expand.

The original relatively well done in the rise, in this round of decline, also put some enterprises involved in the difficult operation and loss.

The main performance is that stocks are rising and stock value has shrunk. The scale of operation is actually passive and must be reduced.

Because all aspects of inventory pressure, capital withdrawal problems, cash flow problems can not maintain your current stage, or the lowest level, a reasonable scale of production.

Under such circumstances, it is more than half a year after entering the futures market to contact with enterprises. In fact, the injured enterprises are generally aware of this, and I will use the futures market to avoid this risk.

Although the value of the futures market is not just this, it is generally understood that futures are hedging tools to avoid price risks.

Under such circumstances, the utilization ratio of the top 500 foreign companies is much higher than that of China. Therefore, if Chinese enterprises want to have a good development or even expand in the future development, they must draw lessons from others' experience and make use of the futures market.

The key is how to make use of it, that is, what I have just said, a lot of knowledge is that futures market is a way to avoid price risk and to manage other risks.

So some participants think futures are more volatile.

My project newspaper market has basically changed since then, but futures are completely different from one minute ago and later, so it is very difficult to control. I can not do this market, as if it is not to evade my risk, but to enlarge my risk.

Because there is no change in the spot market for one day or two days, but there are great changes in the futures market in one or two minutes.

Finally, there is a problem of understanding. Although I want to take advantage of this market to hedge price risk, affect price risk and avoid price risk, I see more futures accounts as futures, and see how futures accounts lose so much.

So enterprises are very blind and separate the two markets.

Many bosses can't tolerate futures accounts losing money, and futures accounts can't afford to lose money.

There is a problem with knowledge.

They think the market is so beautiful, but when they use it, they feel that the enterprise is not helping the enterprise, but let the enterprise survive for one or two years. If it is used, it will be closed next year. Now there are many such knowledge in the market.

I have a way of thinking, why international market is known, especially the enterprises represented by ABCD are very good, doing more and more powerful, and every big fluctuation can escape.

Why do domestic enterprises fail to realize it? Because domestic market and international market have different understanding of futures market. I have conducted in-depth exchanges with them. They regard futures as a kind of enterprise, and they are doing business rather than simply managing a certain risk.

In this way, enterprises will not only avoid price risks, but also make rational use of them.

If an enterprise wants to become a beneficial or even a leader in the industry, you should know what you manage. You need to carry out the whole system risk management, or evade the cost, inventory and capital, so that the whole system can run smoothly, or even get better stability in the big fluctuation, or better growth, so that you can do better, so I think that it is not only to avoid price risk.

From the actual operation point of view, the core of our project management is the development of enterprises, innovation, brand expansion, and terminal network. The core is to maximize profits, and I want to make profits.

The key is what kind of inventory I want to keep, and the smaller the change in inventory value, the better.

I want to manage and expand the scale of financing, and to maintain the cash flow problem in the process of expansion.

Including sales, production of things to sell smoothly, the core is the management of these four.

However, if the project is run, the liquidity of the spot market will certainly be weak as long as the judgement is accurate.

And your cost, if not well done, can not only manage costs, but also increase costs.

Why? If you feel that the market is not good, if you want to sell the product, your marketing cost will expand in a short time.

Can we achieve the desired result?

But if it costs so much.

Short time product sales do not go out, inventory can not achieve the purpose, it is impossible to carry out capital and value stability, so that enterprises can not escape the market volatility.

But with the futures market, can we find the following three problems? This is the earliest value discovery, hedging and price avoidance. Can we solve it? We can solve it by reversing the stock and price.

That is to say, from the perspective of raw materials, how do I operate when prices are low? I buy to avoid the adverse effects of the rising prices.

At high levels, they can be thrown out in the futures market, avoiding the rapid depreciation of stocks in the process of falling prices. I can quickly throw them away.

The liquidity of the futures market is very full. You can sell it in a few minutes, and the spot market will be hard to achieve in a few months.

There are financial management problems, spot market loans and so on, if the market is not good, your return speed, cost are increasing.

There is a margin system in the futures market. How to establish the two aspects of your financial cost, including the inventory management that has just been said, which is large in proportion to the financial cost in fact, can be effectively managed.

This is very deep, I start in the back, when the actual final use of the futures market, you let the business in the business in the entire industry stand out, expand the scale of business and competitive advantage.

Why can I manage futures with the concept of business projects? I have roughly summed up three principles: do you make spot goods, even if you buy cotton to make clothes to sell, or do I futures market is the sale of contracts? Actually, the principle is the same, you must have price difference.

That is to say, I have to add raw materials and processing costs, and the price is low. When I sell it, I must be higher than the cost.

The same is true for trading enterprises. When you add labor and raw materials, you must buy low and sell high. The two markets have the same principle.

There is another principle. The inventory problem I mentioned just now is just physical inventory. But when introducing futures, we can introduce the concept of virtual inventory. Do I buy physical goods or buy contracts in the futures market? From A to E, if futures prices in the futures market are in such a state, for example, buying raw materials, I can quickly establish the virtual stock of futures market at this stage, so as to achieve the annual inventory of the best level of corporate profits, and establish virtual inventory on the enterprise.

Because you know absolutely, this is absolute. The future must rise. I use 50 thousand tons of cotton a year. You can't buy it in one or two days or even a month. Sometimes it is very difficult. The amount of warehousing is too large, and the liquidity of the spot can not reach the inventory of the whole year.

Another is that the storage capacity of the enterprise itself is limited, so it is not always necessary to place so many cotton.

So I buy quickly from the futures market. Once the real price rises, it will eventually be deepwater. If the spot crosses this point, you can purchase the quantity according to the purchase quantity, the larger the spot purchase quantity, the virtual stock will start to stop, to the highest point, I will buy more cash, flat futures, and so on gradually. When the highest point is reached, when the market is pformed, the virtual inventory can be reduced to zero.

Since the virtual inventory has been leveled off, I have a stock in stock. This is not the whole theory that you keep the inventory of the most effective profit of the enterprise, but how much of the stock is thrown away.

So in the entire process, the spot is also selling, how much will be sold off, how many points to the F point, do not need to have stock in stock, can be thrown away.

But when it comes to F, what is special? It can be done for trading enterprises, but if the cotton spinning enterprises even expect to fall in the future, enterprises can not shut down, so they still need to keep a lot of stock. You can also keep part of the value. This concept can solve the problem of poor inventory liquidity.

When I want to buy it, there is a problem, and it is impossible to buy any spot today. I use the futures market to carry out strong futures operation, to operate slowly in the spot market, and gradually use the futures market to liquidate rationally, and gradually hedge the risk.

There is another principle, which has a certain overlap with the front, but from the perspective of profitability, you can solve some problems just now.

Accounts are always losing money, and the principles of integrated operation are complementary.

It is simple for the two markets to carry out consolidated reports. After that, the profits of enterprises are not affected or even increased.

We should consider it from this angle, and simply stare at the futures account, saying that the futures account always loses money. If I do not make futures, I will not lose money.

Merging is not the case. If there are no futures, this is not the case.

Some say that even if they know that they will lose money, they also buy it, which is also a misunderstanding of understanding.

These three principles determine that if we want to make steady development of the enterprise and make good use of the market, we can actually achieve integrated operation, and we can do business at maturity, but only from the perspective of the company as a whole, what strategy will be adopted in the futures market at any stage.

When the matching strategy in the spot market works at the same time, the enterprise can truly appreciate the benefits of the futures market.

The application of the rising stage has just been introduced. At this stage, when the enterprise can not buy it quickly, it is the most reasonable guarantee for the enterprise to make profits. The best I need to use is 100 thousand tons of cotton. I may analyze the price performance for several days in the market, and I will set up the futures warehouse quickly.

After the establishment, we just said that after crossing the point, we would normally purchase, reaching a normal purchase when the futures were in deep water. In fact, I bought the stock at the bottom, and if I could buy it, I would buy futures.

With futures stocks, because futures are profitable, that is, part of your spot losses, futures are enough to make up.

Moreover, with the rapid establishment of virtual inventory, in fact, if you avoid or benefit the enterprise, the profit in the futures market is much more than that of buying spot cash.

The traditional hedging, buying the proceeds reasonably today, selling, and enjoying the price rise, can also enjoy a certain premium in the futures market, which is completely locked, and you can bring some opportunities.

At first, the rapid establishment can rise rapidly in the futures market. Not only can we preserve or reduce risks, but I can get a positive return from a certain futures market. As a cash margin, we can get some positive returns.

When it is fast rising, it will be realized. Even when prices are rising rapidly, your business scale will not be reduced as before.

And your profits are stable. If you do well, you are not just a problem of profit stability. You will gain more profits in the same industry than not only in the same period, but also in profits.

That is to say, when you build virtual inventory in the early stage, you can get the gain in value rise, or evade the risk of price rise, get the premium of price rise, positive return, which is more stable.

When prices fell, I just mentioned that at this point, I quickly leveled off the virtual inventory and threw the project inventory, so that at least there was no risk of depreciation in my inventory.

Moreover, if you make your head in a reasonable position according to the operating conditions of an enterprise, you can not only avoid risks, maintain stable business profits, but also get a positive return in the process of falling.

In this way, you get a strong competitive advantage from your peers.

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In fact, the two rise and fall, the two step operation, mainly based on the operation of enterprises, from your inventory, prices, and demand for funds, as well as the stability of profits, or growth, and the two rounds of mutual integration, we see that the ultimate goal is to evade risks. But what are the hidden problems? In the process of large price increases and large falls, companies that successfully use futures markets tend to not only avoid risks, they will not lose or collapse in a large price fluctuation, or even benefit from futures market in the process of price disadvantageous.

Usually, the industry is depressed. When a large number of enterprises lose money, they use some tools. Of course, the tools are not only the futures market, but also other financing problems.

That is to say, many enterprises are growing up in the low tide period of the industry, which not only guarantees the stability of the industry, but also gains the advantages of capital and profit in the unfavorable environment. Moreover, I can achieve rapid M & A and expansion in the large industrial oscillation in the profit process, and finally determine the status of the industry. A large number of enterprises are like this.

Many enterprises do not have a futures market, and other means should be used to achieve rapid expansion of the counter trend.

But for agricultural products and commodities, the rational use of this tool can solve their financing problems.

In particular, China's 4 trillion stimulus, and now it is control of liquidity, to get financing is relatively difficult.

But with the futures market, enterprises may accumulate funds to achieve the purpose of rapid expansion.

This does not spread out the general meaning. Ultimately, achieving integrated management can not only evade and manage the prices faced by enterprises, but also manage cash, financial cost and inventory, which brings about a problem.

The core is through inventory management to achieve the comprehensive management of price, capital and cost. The ultimate goal is well applied and can achieve rapid expansion in counter trend.

Because our views on cotton are very different. I would like to talk about how to make use of the futures market in the cotton market at the present stage. Just now, how do we do it? First, let's look at the judgement of the cotton market. I have had a lot of exchanges. I thought that cotton prices would drop to 1.3-1.4 million after the acquisition of cotton reserves in China.

After a period of time up to 22 thousand, this kind of voice was gone. When the callback came to 21 thousand, the voice came out again. It was not so pessimistic. It fell to 1.7-1.8 million.

I think this year will be a reasonable location for cotton prices, and there will be no more optimism.

Considering the factors of production cost and various factors, it is only a reasonable return to the price. It will be around 2.4. This is the market price, not the price, which is a reasonable price.

There are several main points of judgement: first, we firmly believe that China's monetary policy will turn to mild or loose government, regardless of whether the government accepts it or not.

The whole world began to stabilize at least from the two quarter, and then slowly recovered.

Therefore, the trend towards a better macroeconomic environment is increasing. How to solve the problem of European debt and US debt and gradually reduce the uncertainty affecting the industry.

Our concerns are closely focused on Japan. Japan is the third largest economy, but its debt problem is different from that of the European Union. We are closely watching it.

What will happen if the Japanese problem becomes serious? We are still concerned about it.

Therefore, the overall judgment of macro-economy will be judged gradually from the two quarter, but the speed is slow. Is there some better policy coming out?

From the point of view of textiles, it is also a controversial issue. The government also believes that the textile industry is not so pessimistic, and a lot of people think that the textile industry is pessimistic.

From the more data showing China's competitiveness, in fact, the month of Spring Festival was much lower than that of the Spring Festival. By the year March, when I looked at the data, I looked at the ring data more. From the link data, the textile exports slowly and gradually turned better, compared to the same period, but the ratio was slightly better than that of the Spring Festival month.

Moreover, the domestic cotton blending ratio is lower than that.

As long as the situation in the foreign countries is improving, the domestic market will gradually increase, not the domestic brands.

I joked with them that if they were to go down again, they would not have to buy it, all of them were chemical fibres, and there would be no point in discussing cotton.

So as long as the economy recovers, their recovery rate must be fast.

Including figures released by the US Department of agriculture, China's cotton stocks are not high in the next year or the following year. The reason why stocks are raised and the textile industry is just beginning to recover is that cotton is more difficult when real demand slows down, and you think of more cotton.

It is also uncertain that the decline is inevitable this year. In fact, the factors that will cause the price increase in the future will be great. How much will it fall? In the future, once the industry recovers better than expected, the price will be very stimulating.

There is also the problem of China's imports. The world's cotton is about 20000000 tons of output. What will China bring to large quantities? What's the pressure on China's imports? What's the pressure on China? What I have said before has already bought about 3000000 tons and how many cotton? Do not other countries consume cotton? If China buys abroad, will the world cotton relax?

Now the quota seems to be increasing, and many cotton can't get through after coming in, and can't get the quota, which is known as the quota of 3000 yuan per ton.

Some time ago we joked that the price of cotton is not the price but the quota price. The rise and fall of the quotas will show the rise and fall of cotton prices.

If the macro-economy improves further, the circulation in the market will be better. This is our judgement. Cotton is still more optimistic, just based on the reasonable price.

No more planting. After all, the cost of production is rising.

I think it is still very effective. If I want to fall to 1.7-1.8 million, I think it is impossible.

Such operations, we generally judge cotton is like this, I say futures market, spot market return to 2.4 possibilities, but the futures market is still rising, warning price is 26 thousand, cotton futures 26 thousand, and then the risk is very large, cotton futures is 2.4, deep water to 26 thousand, I think the risk is very big.

The problem of inventory management just mentioned is not suitable for a large number of stocks, because it is now a futures premium. There is a difference between the theoretical model and the actual situation.

I think the futures deepwater is more, but it is because many people think that the view of the textile industry is too pessimistic, pessimism leads to a low desire for cotton purchase, so the market is underestimated, and the future will rise for some time. If my judgement is right, the increase in spot will be faster than futures.

So I think that for the spot enterprises, it can not be the same as the theoretical model, but it should reduce the inventory, which is beneficial to the enterprises.

Just now 24 thousand and 26 thousand, the whole enterprise's risk management, including the use of futures market, is not finished. Your risk management and hedging strategy should be phased. When a certain high point is in place, that is to say, the model should be 2 or 3 times, rather than trend, unilateral rise or fall, maybe once finished, it will become consumables.

The overall point can be bought and sold at the point, but it should be done 2 or 3 times instead of simply doing it. It depends on the trend market or the oscillation market. If it is oscillation, you have to do it several times.

26 thousand we told a lot of customers that there are actually time, including the proper control of positions. If the first turn is 22 thousand, we are fully recovered from 22 thousand. At present, it is about 21 thousand and 300. We should have the opportunity to make such a judgement. At present, we have been observing second rounds of the lowest to 20 thousand and 140 times.

Judging from the fundamental and macroscopic aspects, we can see how the whole industry will recover in the future. After making it, we will then judge what the cotton demand and the price of cotton will have.

It's not just one or two months, but what kind of progress it is after a year.

I would like to talk about it today. I hope you will be enlightened and appreciated. Thank you!