Cotton'S High Price Purchase And Storage, Twisted Chain, And Textile Industry Suffer

According to a reporter's survey, following the difficulties in delivering and storing cotton in the third and fourth quarters of last year, cotton farmers are also hard to get tangible benefits from it (see our report "Secret War Reserve Cotton: The Secret of" Buying by Market "on November 28, 2012). Now, cotton in the middle reaches of China spin The industry is also experiencing a series of "chain reactions".

According to our reporter's investigation, under the purchase policy of the national reserve cotton, while the national reserve cotton itself suffered losses and the cotton farmers could hardly benefit, what was really affected was China's textile industry, which was originally a small profit clothing The industry, not only is the whole industry being collectively suppressed, but also the ecology of China's cotton textile industry chain has changed, so that some enterprises have to move overseas to seek profits.

However, the national reserve cotton, which is struggling to maintain high prices, has an inventory level of 9 million tons higher than China's annual cotton consumption. The inventory impairment and direct losses that the national reserve cotton is now facing have become a heavy burden on the financial sector.

In addition, the price distortion has also led to a series of consequences, such as corruption of import quotas, loss of pricing function and shrinkage of cotton futures market.

The reporter's investigation shows that the cotton purchase and storage policy is causing the distortion of the whole chain, and the mode of high price purchase and storage has come to an end. The protection and subsidy methods for cotton farmers and the protection of cotton planting need to be reconsidered.

　　 Price difference up to 4500 yuan/ton

The national cotton storage policy dates back to 2010. Due to the previous downturn in the cotton market, the international cotton price soared in 2010, up to 32000 yuan/ton, which led to a big profit for the national reserve cotton with a small inventory at that time. Earlier, the cotton purchased and stored at 10000 yuan/ton increased by up to twice.

"The problem is that the national reserve cotton thinks that this kind of price rise will become the norm, and that the more it receives, the more it earns, so it opens up its purchase. But it did not expect that the cotton price would drop significantly after 2011." A senior cotton market person told our reporter that, in fact, the situation that the cotton price exceeded $1/lb in 2010 only happened twice in history, and it cannot be regarded as the norm.

Another reason for purchasing domestic cotton at a higher price than the international market is to protect the interests of cotton farmers, stabilize domestic cotton planting area and production, and ensure domestic cotton supply.

According to the aforementioned senior personage, at the 2011 cotton work conference, the relevant officials of the National Reserve of Cotton said, "China is a big country in the textile and clothing industry, with a certain cotton self-sufficiency rate, so we can rest assured to develop the textile and clothing industry. Cotton self-sufficiency needs a certain amount, otherwise it will be subject to overseas constraints."

However, the current situation is that the high price of cotton in China has significantly increased the cost of raw materials in China's textile and clothing industry, which has reduced the international competitiveness of China's textile and clothing industry as a whole, in addition to the appreciation of the RMB and the increase of labor costs.

Even according to the current purchase price, according to our reporter's survey of cotton farmers in Shandong, a major cotton producing province, in mid November last year, cotton farmers' profits have no comparative advantage, and their enthusiasm for growing cotton is not enough. On the contrary, the quota control on cotton import breeds corruption, leading to the purchase and sale of cotton import quotas.

Due to the huge price difference between national reserve cotton and imported cotton, the quota of imported cotton naturally becomes a tool for some people to make profits. The qualification of a ton of imported cotton can be sold to 3000 or 4000 yuan.

Li Wen (not his real name) is the head of a private cotton textile enterprise in Zhejiang Province. He has his own yarn mill and weaving factory. 80% of the company's products depend on exports. He complained to our reporter that spinning is now a unprofitable business. Since the implementation of the national reserve cotton purchase policy, it has been basically unprofitable.

"A ton of our cotton is more than 4000 more expensive than our foreign counterparts, and the price of our imported cotton yarn is even lower than the price of the cotton I use. How can we compete?" Li Wen said, "At present, we have to work hard to maintain. The company has been able to maintain and maintain certain exports, mainly because our workers are skilled and industrious."

Li Wen said that if his company needed 100 tons of imported cotton, he would apply to the Municipal Development and Reform Commission for the qualification of 100 tons of imported cotton. However, he would not be granted the qualification in the first year of the application, but he would be granted the qualification in the second year, but generally only half of the quantity, that is, only 50 tons. However, after the provincial approval, only 30 tons may be obtained. As for the other 20 tons, It is often given to people who have relationships.

　 The dilemma of textile and clothing industry

The difficulties of cotton textile enterprises are unprecedented.

According to our reporter, the cost of cotton accounts for about 70% of the cost of cotton mills. Since the price of domestic cotton is about 4500 yuan higher than that of imported cotton, the cotton textile industry is struggling to maintain, but this maintenance is based on "our workers are diligent".

What's more, under the pressure of high costs, Chinese textile and clothing enterprises are forced to give up some orders, and the international market share continues to decrease. More cotton textile industry enterprises are transferring their production chains to Vietnam, Bangladesh, India and other countries.

What high prices threaten is actually the entire industrial chain of the cotton textile industry. One family cloth The person in charge of the printing and dyeing company told our reporter that he has received fewer and fewer orders. At present, the company can only practice the "turtle interest method" to reduce business as much as possible and strive to survive. He even hopes that one day, the RMB will depreciate greatly, and the company will get a second chance.

Although Li Wen's own company can also produce cotton yarn, because the country does not currently prohibit the import of cotton yarn, Li Wen chose to import some cotton yarn to reduce costs. He said: "I cannot import all cotton yarn, because we cannot let the workers of the yarn mill have a holiday, we can only continue to survive and produce a small amount of cotton yarn."

The head of a cotton textile foreign trade company in Hangzhou told our reporter that 2012 was the most difficult year. This year's exports increased by 30%, but the income was the same as last year's, and this year's sharp appreciation of the RMB made the company's business worse. However, he believes that he has found a way to make a fortune, that is, although the country restricts cotton imports, it does not restrict cotton yarn imports. He intends to import cotton yarn for profit.

Although Wang Qiang, general manager of Shandong Ruyi Cotton Textile Group, did not expect to cancel the national cotton storage policy, he told our reporter that he hoped that the import quota of cotton would be larger and the price of national cotton would be lower.

Wang Qiang said that in countries newly entering the textile industry, India and Pakistan, most of the machinery and equipment used to produce cotton yarn are the latest equipment, which is better than the domestic cotton mill equipment. The international competition pressure in the industry is great. At present, the domestic advantage is that the quality of workers is higher than theirs.

The contradiction of China's cotton import control policy is that the import of cotton is controlled, but the import of cotton yarn is not restricted. This has led many Chinese garment enterprises to import cotton yarn directly from overseas. China has let go of the added value of the industry from cotton to cotton yarn, and has greatly boosted the relevant industries in India and other countries.

Cotton consumption in the South Asian subcontinent rose

Since 2000, China has gradually established itself as the center of world cotton consumption. The world cotton consumption increased by 22 million bales (4.83 million tons) from 2000 to 2010, and the cotton consumption of China's textile mills increased by 22.5 million bales (4.89 million tons)

However, after 2010, China's cotton consumption decreased by 14 million bales (3.04 million tons). At the same time, India's cotton demand increased by 3 million bales (650000 tons). From 2009/2010 to 2012/2013, world cotton consumption declined by 9%, while China's consumption declined by 28%.

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Countries in the South Asian subcontinent use competitive raw cotton, and their textile production capacity continues to expand. The prospects for cotton demand are very promising. People in the cotton industry believe that India, Pakistan and Bangladesh are replacing China as the new cotton consumption center of the world.

For a single country, China consumed 7.84 million tons of cotton in 2012, 5.27% less than 8.27 million tons in 2011. But at the same time, India increased from 4.3 million tons to 4.95 million tons, with a growth rate of 15.2%; Pakistan increased by 15% from 2.18 million tons to 2.5 million tons; Bangladesh increased by 12% from 720000 tons to 810000 tons. The total consumption of the three countries in the South Asian subcontinent increased from 7.2 million tons to 8.26 million tons, completing the catch up with China. In addition, the growth rate of cotton consumption in Vietnam and Thailand in 2012 was as high as 27% and 25%.

On the other side of the coin, India took the initiative to establish cotton export quotas and restrict cotton exports to strengthen competition with China's industrial chain. The cotton textile industry involves 17 million cotton textile workers in China. According to the input-output analysis made by the National Bureau of Statistics many years ago, the textile industry has increased its input by 1.00 units every year, and its influence coefficient on the national economy is 1.25, 25% higher than the industry average.

　　 About 30% of the cotton mills were closed

Although the quality of workers in cotton spinning enterprises is high, many small and medium-sized enterprises still cannot withstand the impact, especially those companies that produce less than 40 cotton yarns.

He Yinguan, the deputy general manager of Suzhou Runxinhua Import and Export Co., Ltd., which specializes in the import and export trade of cotton, chemical fiber and cotton yarn, told our reporter that cotton yarn was not subject to quota management, and the huge price difference stimulated huge imports. From January to October 2012, 1.3 million tons of cotton yarn was imported, accounting for 20% of the domestic yarn. He estimated that the import of cotton yarn last year, It directly caused the closure of about 15 million domestic spindles and the unemployment of more than 200000 textile workers.

In a normal year, the annual consumption of cotton is 10 million tons. In the past two years, the national storage of cotton has dropped to about 7.8 million tons. He Yinguan said that this year, the country's cotton output was 7.4 million tons, and 6.5 million tons were collected and stored. From January to April, 1.31 million tons were dumped and stored, and 1.79 million tons were imported, a total of 3.1 million tons. Subtracting the factors of inventory increase, the monthly consumption was about 0.7 million tons, and the imported yarn was 640000, a year-on-year increase of 51%, which is equivalent to the reduction of domestic cotton use by 220000 tons.

He estimated that, based on the data of the decrease in cotton consumption and the increase in imported yarn, the scale of domestic spindle shutdowns should be 18 million to 20 million, accounting for about 20% of the total. Since most of the closed mills are small and medium-sized enterprises with less than 50000 ingots without national quota subsidies, the number of closed mills accounts for about 30% of the total.

He Yinguan said that the current bankruptcy of the cotton mill is not what the relevant experts or leaders say about technical transformation, transformation and upgrading, and increasing added value. He believes that there are basically three types of bankrupt cotton mills: first, small and medium-sized enterprises without national import quota subsidies, second, enterprises with insufficient original financial strength, and third, enterprises that have invested too much in technological transformation in the past two years. "What enterprises lack most is not capital, but profitability."

From the perspective of listed cotton textile enterprises in 2012, they basically suffered losses across the board. In addition, according to the data of the National Bureau of Statistics, from January to February this year, the total industrial output value of China's cotton textile enterprises above designated size increased by 14% year on year, and the loss amount of loss making enterprises decreased by 18% year on year.

According to the actual situation of the survey conducted by China Cotton Textile Industry Association, the loss of the industry has narrowed, but most enterprises report that at present, the orders of enterprises are still based on volume, and there is almost no profit space, especially small and medium-sized enterprises are still difficult to operate.

According to the data of the General Administration of Customs, in March 2013, China's export of textiles and clothing was about US $16.721 billion, a year-on-year decrease of 11.01% and a year-on-year increase of 24.41 percentage points. According to customs statistics, the export value of textiles and clothing in April was 22.3 billion US dollars, up 18.5% year on year. In April, the sales of cotton textiles turned weak again, the price dropped slightly, and the differentiation between enterprises was obvious. A few high-end enterprises had sufficient orders and good profits, while most small and medium-sized enterprises had meager profits or even losses. The operating rate dropped significantly compared with the first quarter.

An expert wrote that the large difference between domestic and foreign cotton prices has led to a sharp decline in the use of domestic cotton, which directly led to the situation of insufficient use of cotton, most of which went into storage. The development of the textile industry has absorbed a large number of rural labor, but now it has aggravated the unemployment of the textile industry.

　 Transfer overseas

The share price of Tianhong Textile listed in Hong Kong has risen from 2.45 Hong Kong dollars per share in October 2012 to more than 11 Hong Kong dollars per share at present. Such a huge increase is due to the company's earlier "going global" and cash in the profits from its investment in Vietnam. In 2006, Tianhong Textile decided to invest in the construction of a textile factory in Tongnai Province, near Ho Chi Minh City, Vietnam.

According to its 2012 annual report, the turnover of Tianhong Textile in 2012 was 7.341.5 billion yuan, and the profit of the year increased by 7 times to 486.3 million yuan, and the profit per share also jumped by 7 times to 0.55 yuan from 0.07 yuan in 2011. The company's overall gross profit margin increased from 8.1% in 2011 to 15.3% last year. The reason is that Tianhong has a factory in Vietnam, and each ton of cotton purchased in the international market is 3000~4000 yuan cheaper than that in China.

In contrast, Lutai A is one of the largest cotton textile enterprises in China. From January to September 2012, its total operating revenue was 4.207 billion yuan, down 5.77% year on year, and the net profit attributable to shareholders of the listed company was 461 million yuan, down 35.63% year on year.

After tasting the benefits, Tianhong Textile's new factory in northern Vietnam started construction in July 2012, with a total investment of about 1.1 billion yuan and an increase of about 400000 spindles. In addition, Tianhong Textile plans to invest 400 million yuan to build a textile factory in Uruguay in South America. It is estimated that after the completion of all projects, the processing capacity of Tianhong Textile will increase from the current 1 million spindles to about 1.5 million spindles.

The price of cotton used by cotton textile enterprises is much higher than that in the international market. The national cotton storage policy tries to digest cotton far higher than the international market price through cotton textile enterprises. The result may be that China gives up the cotton textile industry chain to Southeast Asian countries.

Gao Yong, vice president and secretary-general of the China Textile Industry Federation, once said, "At present, it is better for enterprises with export orders to build factories in Southeast Asia. This trend of being forced to 'go global' will continue for several years."

If the cost of other links in the domestic cotton textile industry chain, such as labor, energy, various taxes, etc., is far lower than the foreign market, domestic cotton textile enterprises can digest the price difference of cotton. However, our labor costs have risen rapidly in recent years, and the RMB has appreciated greatly, posing a great threat to the survival of the cotton textile industry.

"Not only is the labor cost in Vietnam nearly half lower than that in China, but also the Vietnamese government stipulates that foreign investment companies will be exempted from income tax for three to four years from the first profit-making year, and then will be given half of the income tax for seven to nine years (about 12.5%)." Wang Qiang told our reporter that "Tianhong, Blum, and Huafu have all done very well in Vietnam".

In contrast, the cotton textile enterprises produced in China are struggling to survive, and the cotton textile enterprises suffered losses in 2012. Xu Yongchao, an analyst at Southwest Securities, believes that the price difference between domestic and foreign Khmer has hijacked the entire domestic cotton spinning industry, and domestic cotton spinning enterprises account for a large proportion of export products. Cotton spinning is located in the middle reaches of the textile and clothing industry, and the market is completely competitive. The price of cotton yarn and cotton cloth depends on the overseas market. Chinese enterprises can hardly have pricing power in the international cotton yarn market, Therefore, it is difficult for domestic cotton textile enterprises to transfer the high price cotton cost to downstream clothing enterprises at home and abroad.

　　 Cotton futures market is dead

"Our cotton futures once flourished, surpassing that of the United States. However, the main contract of Zhengzhou cotton trade, which once ranked first in the world in terms of turnover, has now fallen to less than 10000 hands a day, which used to be normal at 1 million hands, and more than 3 million hands at the peak." He Yinguan told our reporter.

The futures market has completely lost its price function due to the pricing of cotton purchase by the National Reserve of Cotton. In fact, there are many prices in the cotton market at present. The national reserve price of cotton is 20400 yuan/ton, but at the price of 19000 yuan/ton, both prices are higher than the international market. Where is the futures market?

Why does the futures market shrink? A person in the cotton futures market told our reporter that at present, the cotton futures market has neither hedging function, nor investment and speculation function

In addition, due to two consecutive years of storage, especially in 2012/2013 when the storage volume exceeded 6 million tons, only a small amount of cotton that could not meet the delivery and storage conditions remained in the market, and the spot market was seriously short of liquidity after storage.

Xu Aixia, a researcher in the cotton industry of Everbright Futures, told our reporter that although the cotton has been dumped and stored all the time, it basically enters the terminal directly, rarely enters the circulation link, and it is difficult to generate warehouse receipts for this year's cotton. In addition, the spot market has price but no market, which also makes the futures lack the guidance and support of the spot market, leading to the shrinkage of futures trading positions.

According to data statistics, as of February 1 of this year, China's cotton storage and purchase volume totaled about 6.15 million tons, accounting for about 83% of the annual cotton output of 7.4 million tons. This year's national cotton storage inventory was at a historical high.

　　 Failure of Small Production and Large Market

"The starting point of our national cotton storage is good." Wang Qiang believes that the main purpose of national cotton storage is to stimulate the enthusiasm of cotton farmers to grow cotton.

According to our reporter's previous investigation in Shandong, the production cost of cotton mainly includes seed, fertilizer, pesticide, electricity, drainage and management, labor and other production costs. However, compared with other economic crops, although the current national policy of storing cotton has significantly increased the market price of cotton, in fact, for farmers, planting cotton is still not as cost-effective as planting other economic crops.

According to our reporter, except in Xinjiang, cotton is mostly produced in a household by household way, which makes cotton varieties messy, and it is easy for cotton farmers to mix foreign fibers when picking and drying cotton, reducing cotton quality. It is also not conducive to the promotion of new cotton technologies and production methods. This contradiction between the decentralized "small production" of cotton farmers and the "big market" at home and abroad has greatly affected the improvement of our cotton competitiveness.

In contrast, in 2000 alone, the average cotton planting scale in the United States has reached more than 180 hectares, while the average scale in Australia is no less than 1000 hectares. In recent years, some farmers in China have expanded their planting areas, but there is still no scale for production.

In cotton exporting countries such as the United States and Australia, large-scale cotton planting mainly depends on mechanical operation, and then the government gives subsidies to farmers to stimulate cotton planting. Wang Qiang believes that the price difference between Chinese and foreign cotton is too big, mainly because American cotton, Australian cotton, etc., use mechanization to reduce production costs, while the government provides high subsidies.

According to the 2013 Plan for Temporary Collection and Storage of China's Cotton, China will continue to open the collection and storage of cotton in 2013, with unlimited quantity. The price of temporary collection and storage will remain unchanged from the previous year, still at 20400 yuan/ton, and the quality of collection and storage will be subject to the new cotton standards.

However, according to the survey data of the China Cotton Association, China's intention to plant cotton in 2013 has decreased by nearly 10%, and the decrease in intention to plant cotton is expanding. According to the same caliber comparison, the cotton planting area is expected to decrease by 6.5 million mu to less than 70 million mu.

Compared with other crops such as corn, cotton is prone to insect infestation, which requires spraying pesticides, cotton field management, fertilization, etc., and there are many processes. Moreover, after the purchase price of wheat and corn rises, cotton consumes more manpower, but its income is not high.

He Yinguan believed that the national cotton reserve policy resulted in huge national investment. Based on the 8 million tons of warehoused goods, the state has invested about 160 billion yuan in the collection and storage of goods, 10 billion yuan of bank interest needs to be paid every year, and more than 1 billion yuan of storage costs.

For delivery and storage enterprises, compared with the normal market sales, the cost of delivery and storage increased by more than 200 yuan per ton, resulting in a waste of about 1.6 billion social resources. If the price of cotton in the international market is compared, the value of this huge inventory will be greatly discounted. In addition, the quality of cotton in inventory will continue to decline. The result is to promote the development of textile enterprises in China's competitors in the international market, such as India.

"The state has invested a lot of financial resources to protect the interests of cotton farmers, but the state's investment in collection and storage has not all fallen into the hands of cotton farmers. What we share are: delivery and storage enterprises, logistics and storage enterprises, and textile enterprises exporting cotton yarn to China such as India and Pakistan. In addition to the state finance, there are also domestic cotton textile enterprises and domestic cotton mill employees who bear the direct losses." He Yinguan said.

Wang Qiang said that cotton planting outside Xinjiang is operated by one household, and large-scale mechanization cannot be implemented. Direct subsidy to cotton farmers is a way, but it is too large to be implemented easily. It has been discussed for many years, but it has not been possible.

"However, judging from the current situation of the purchase of the state-owned reserve cotton, the high price purchase policy has kidnapped the entire industry, and the state-owned reserve cotton itself is also losing money and operating hard," said the aforementioned senior person.