Chinese Cotton Enterprises Are Hit By Low Price Imported Cotton

The industry proposes to ensure that cash flow pays attention to buying time and keeping value.

This year, the domestic market is declining and the external demand market is weakening.

The operation is under great pressure.

In this regard, Xu Zhimou, vice president of Ruida Futures Research Institute, believes that the biggest challenge for the textile industry is not the rise in labor costs, but in the cost of raw materials - domestic cotton prices exceed the international market, leading to a decline in the international competitiveness of the textile industry and a further drag on exports.

May cotton import quota supermarket expectations

According to the US Department of agriculture's supply and demand report in May, the global cotton carry over inventory in 2012/2013 is a record 16 million 57 thousand tons, which is over 10% higher than that of the previous year. The high inventory at the end of the world is a high pressure on the medium and long term cotton prices. In May, the country increased the quota of 1 million tons of cotton imports, and the import quota increased more than the market expectation in the case of European debt worries and the weak spot market.

This has exacerbated the pressure on the cotton market, maintaining high import volume and continuing to impact the domestic spot market.

"From last year to the present, cotton prices have gone from high to low. In the face of cotton inventory digesting problems, the purchasing of cotton by local textile enterprises is facing more risks.

Xu Zhimou said.

Hedging and discovery prices can be made through futures.

According to Xu Zhimou, in fact, cotton futures can bring two benefits to enterprises: first, cotton enterprises can lock in the cost of raw materials by hedging in the futures market; secondly, finding prices, cotton spinning enterprises can make operational decisions according to the price signals provided by the market, and adjust their business direction and management mode according to price changes, which is of great significance to the production and operation of cotton spinning enterprises.

"If the expiration price is higher than the agreed price, the futures buyer will realize the spot value or profit margin, which is very advantageous to the textile enterprises when the cotton price continues to rise. If the expiration price is lower than the agreed price, the seller of the futures will realize the hedging of the spot, and can buy the same quantity of stock at a lower price. Although the spot has depreciated, the futures sold at a high price in the futures market have already realized profits."

Xu Zhimou said, however, many textile enterprises to participate in the traditional practice of futures is simply buying and maintaining value, in many cases hedging effect is not ideal.

Therefore, in addition to buying and selling value, selling, hedging, arbitrage, intertemporal arbitrage and other hedging mode, enterprises can understand and try.

Business owners can focus on buying opportunities.

Xu Zhimou suggested that cotton processing and trading enterprises can make a good ending for the cotton this year; and for next year, we should make full use of the advantages of various channels to make full use of the structural opportunities of the market from two angles of procurement and sales.

In the face of severe consumption situation, it is strategically recommended that textile enterprises ensure adequate cash flow, and on this basis, upgrade equipment in a rhythmic way, and get rid of labor force (high cost and labor shortage); cotton procurement, it is suggested that owners should pay attention to the opportunity to buy virtual stocks in futures; in arbitrage pactions, Xu Zhimou said that no opportunity was found in this period; and for speculators, it is suggested that long term speculators wait for stabilizing opportunities in the value area.