Domestic And Foreign Cotton Prices Will Continue To Rise Until September.

Recent internal and external

Grid synchronous rise, the average price of throwing and storage exceeded 14 thousand.

Looking forward to the future, although the downstream demand is sluggish and the storage space of the national cotton reserves has been rising for a long time, the short-term market will continue until the new cotton market in September, due to the short term improvement of the dumping and storage volume, the tight balance between supply and demand and the reasonable price difference between domestic and foreign cotton.

It is recommended to pay attention to A shares, Huafu color spinning, Bailong East and Lu Tai.

Wei Qiao textile.

Commentary

The increase in cotton prices is mainly due to insufficient reserves, weather and production cuts.

(1) throwing storage: before throwing storage.

The expected March is postponed to May, and the public inspection is too slow to affect the throwing reserves. (2) weather: there are more delays in the storage of national cotton stores and the hail in Xinjiang. (3) the reduction of production: the cotton planting area decreased by 14.3% in 16 years.

Judging from past years, the annual cotton market is concentrated in March (stock replenishment logic) and 6-7 months (abnormal weather). We expect that the market will continue until September when the new cotton goes public: (1) the quality of the quality assurance requirements will not improve short-term storage and distribution; (2) cotton production will be 4 million 430 thousand tons, consumption 7 million 640 thousand tons, and supply and demand gap 3 million 210 thousand tons in 2015/16, and the supply and demand balance will be tight before September.

The cotton prices are rising simultaneously, and the difference between domestic and foreign cotton prices is still in a reasonable range.

The price difference between inside and outside cotton reached the maximum of 5000 yuan / ton + in the past, and the Cotton falling in the early stage was once upside down.

The rising price of cotton in the current round is accompanied by the high synchronization of cotton production. The main reason is that the supply of India in the world's largest cotton producer has dropped significantly (the cotton planting area in India has reached a new low of 7 years). The difference between domestic and foreign cotton prices is about 1500 yuan / ton, which we believe is still in a reasonable range.

The increase in cotton prices will help to raise the price of orders and increase the gross profit margin. The color spinning enterprises will have greater elasticity: the cotton price impact on the industrial chain is mainly reflected in: (1) the order price: the leading enterprises with strong bargaining power and foreign cotton pricing; (2) affecting the inventory cost: cotton mills generally reserve 3 months ahead of time; in the cotton price rising cycle, low price stocks are expected to benefit and contribute to gross margin.

The cost of cotton is higher in Huafu color spinning and Bailong Oriental color spinning enterprises (80%), accounting for about 60% in Shandong and Shenzhou, but the proportion of long staple cotton in Shandong Province is 80%, and the price of long staple cotton is still declining due to oversupply.

Valuation and suggestion

Huafu color spinning and Baron East are more resilient, and new agricultural development has led the rally in all previous cotton prices.

It is recommended to pay attention to A shares, Huafu color spinning, Bailong East, Lu Tai, Hong Kong stock Shenzhou International, mutual textile and weqiao textile.

Recommended A shares Lu Tai (16P/E14 times), H-share Shenzhou International (16P/E17 times), mutual textile (16P/E12 times), Wei Qiao textile (16P/E5 times).

risk

National reserve cotton reserves increased; downstream demand continued to slump.