Textile Entity Enterprises Are Crying For Tears In The Face Of High Inventory Of Cotton Reserves.

The momentum of speculation in the futures market is increasing.

Physical enterprises face high cotton reserves

No tears.

In order to avoid breakage of cotton spinning industry chain, various policy proposals have been put forward one after another.

There are many legendary commodities markets in 2016, but the emergence of cotton is most dramatic.

Cotton has been very angry since other commodities rose in the first half of the year.

But almost overnight, cotton futures surged to a two year high.

In July 12th, the ICE rose sharply, breaking 70 cents mark.

The direct fuse for the accidental rise of cotton is that the daily amount of China's cotton reserves is inconsistent with the contents of the April 15th announcement.

In addition, the monthly report on global cotton supply and demand released by the US Department of agriculture in July 12th further boosted cotton prices.

According to the announcement, under normal circumstances, the number of daily reserve cotton sales is not more than 50 thousand tons, and the specific number of rounds is based on actual pactions.

If the market price of domestic and foreign market has obviously increased rapidly for a period of time, the turnover rate of the auction sale of reserve cotton will exceed three days or more than 70% days a week, and the number of sales will be increased appropriately.

According to the monthly report, the cotton inventory at the end of the year 2016/2017 was estimated at 91 million 290 thousand packages, a decrease of about 10%, much lower than previously expected.

The reason behind the sharp rise in cotton prices is also due to tight supply in India and Pakistan and strong demand in China.

India textile Commission said recently that due to drought, cotton production in India is expected to reach 730 thousand tons in 2015/2016, down 1/3 from the same period last year, to the lowest level in six years.

The drop in cotton stocks will limit India's cotton exports next year.

Meanwhile, due to poor weather conditions in Pakistan, the planting area has declined, and output in Greece and Uzbekistan has also declined. This provides support for international cotton prices.

While global cotton production is declining, China's demand is strong.

In July, the US Department of agriculture's cotton supply and demand report showed that China's 2015/2016 consumption increased by 327 thousand tons.

At the same time, China's Cotton Traders' crazy speculation is also pushing up cotton prices.

From the second quarter of this year, Zhengzhou cotton futures prices entered the rising channel, data show that cotton futures CF1701 contract closing price of 10030 yuan / ton in April 1st, to July 1st, the CF1701 contract closing price of 15420 yuan / ton, set a new round of the current market high.

In just three months, cotton futures prices have risen by nearly 50%.

In fact, the price of ICE cotton and the price of Zheng cotton are pulling each other.

International buyers have seen that China's cotton prices have risen in recent months, which has also strengthened their confidence.

And the ICE period cotton and Zheng cotton prices have a shadow of speculation.

Speculators in the Chinese market are making a lot of money. The price of cotton futures is close to the price limit, and the number of sets of insurance companies has been explode. The non production enterprises purchase cotton reserves, which makes the cotton spinning entity enterprises suffer heavy losses.

The policy drawbacks and the speculative buying of traders have caused confusion for the current cotton and cotton textile industry chain. Gao Yong, vice president and Secretary General of the China Textile Industry Federation, told reporters that the main problem of cotton is that China's cotton policy has led to the widening of the domestic and foreign price differentials, which has led to a decline in competitiveness of Chinese cotton textile enterprises, especially for exports.

At the same time, the inventory and subsidy policy of national cotton stores has made the quality of domestic cotton decline along with the extension of stock time, which has made the cotton spinning enterprises more difficult.

Cotton prices surged

Like many commodities, cotton prices climbed to the top in 2011 and then plunged into bear market for many years.

Cotton prices suddenly erupted until the two quarter of this year.

Daryl Montgomery (Daryl Montgomery) has been studying commodities and has published four related works. He told reporters that cotton prices have continued for two years, mainly due to the subsequent impact of high inventory in China's cotton purchasing and storage policy.

After the global financial crisis in 2008, Zhengzhou's cotton futures price rose from 10155 yuan / ton in October 2008 to 33692 yuan / ton in November 2010 under the domestic loose monetary policy.

In 2011, in the face of a sudden drop in cotton prices, in order to protect the interests of cotton farmers, to protect the supply and stability of the market, China issued a temporary purchasing and storage policy, the storage price was set at 20400 yuan / ton, 19800 yuan / ton.

At that time, the price of cotton futures in Zhengzhou dropped from 33000 yuan / ton to 27500 yuan / ton, and the price of purchasing and storing became the guidance price of the market at that time, resulting in a further decline in cotton prices.

In order to resolve the serious surplus of cotton inventory, since 2014, China's domestic cotton policy has been changed from purchasing and storage to direct subsidy, and Zhengzhou cotton futures price has dropped from 20000 yuan / ton.

The policy has been implemented for more than two years but failed to significantly reduce the size of China's cotton reserves.

Insiders pointed out that 2015 was largely due to overpricing in the government auction process, resulting in the sale of cotton stocks which were inferior to the latest cotton harvest.

Montgomerie believes that the relationship between China's dumping and selling some of its cotton reserves to the market and thus lowering cotton prices has seemed to have been broken recently.

China's domestic cotton supply and demand is tight now, with less than 30 thousand tons of trading volume per trading day, and the turnover rate of cotton reserves in July is 100%.

After the Spring Festival in 2016, people were immersed in the anticipation of throwing stores in March. Textile enterprises therefore delayed the purchase of raw materials. After May 3rd, the storage and storage began to take place.

More than a month's delay and the government's announcement in April 15th led some textile enterprises to become extremely passive and forced to buy high priced cotton from traders.

After May 3rd, the textile enterprises were dissatisfied with the fact that they were slow to throw out and store out of stock, difficult to get out of the warehouse, and "squeezing toothpaste out of storage".

Dumping has great impact on the market through two factors: time and price.

This year, we need to carry out the inspection of each package for the storage of cotton reserves. The workload is huge and the speed of public inspection is slowed down.

Li Dongmei, general manager of Ruyi import and Export Group in Shandong, said that the dilemma is that if the quantity of the cotton is directly released from the package inspection, the quality of the cotton produced by the company may be limited, but if the package inspection is carried out, the quantity will be limited.

We have put forward an effective way to extend the storage time to October, even if it is September, our rations will be able to enjoy the new flower listing.

There is another way to increase the amount of new cotton, which has been inspected in batches according to the ratio of 30%.

Because cotton spinning enterprises feel more comfortable with Xinjiang cotton, especially the quality of Xinjiang cotton in 2011 is good, although the quality of Xinjiang cotton has declined in the past two years.

Although Li Dongmei's proposal is the common aspiration of Chinese textile enterprises, it is still hanging in the air, and the domestic cotton futures market has formed a wave of market.

Some funds, such as traders with large amounts of money, pushed up prices, making the cotton market in June exploding.

The promise of national incremental dumping has not been fulfilled. It has also reduced reserves to less than 20 thousand tons per day, artificially creating a shortage of cotton in the market.

By the middle of 7, the fluctuation of upstream cotton and viscose fibers had begun to flow downstream. The price of cotton yarn and grey cloth in cotton textile factories in some areas has been greatly raised, and whether the three major textile markets in China will usher in a wave of price increases, and also look at the consumer market.

Speculative buying in the world has pushed cotton prices from one high to another.

Montgomerie said futures traders were overreaction to the rise in cotton prices and pushed prices too fast to a high level.

Textile mills have been shocked by the unusual sudden rise in cotton prices in India recently.

In January, India's domestic high-grade spot price was 32500 rupees / candle, which rose to 33700 rupees in early March and soared to 47800 rupees in July 12th.

It will stimulate the global and Chinese cotton prices to go up.

Montgomerie pointed out that if the price of cotton rises very fast in the next few weeks or months, the price will fall back very quickly.

If cotton prices rise gradually from the current level, with a smaller decline, cotton prices will continue to rise for quite a long time, even years.

As a result, the "ceiling" of cotton prices and the "floor" collision of textile enterprises' production cost make textile enterprises gradually trapped in the besieged city.

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The pain of cotton spinning enterprises

At the time when cotton prices resonate at home and abroad, many cotton textile enterprises began to retreat from India to China.

The consensus of the industry is that cotton prices will continue to rise in the short term, but from now on, cotton prices seem to be too high.

At the end of the industry, cotton textile enterprises in China are particularly vulnerable.

Zhu Beina, President of the China Cotton Textile Industry Association, told reporters that the cotton textile enterprises had been suffering for four or five years. In the first half of this year, there was just a slight improvement.

Cotton prices continue to rise slightly, and this change is not entirely formed by the role of the market, more people are influenced by man-made rules.

Although reserve cotton continued to come out, there was still a shortage of market supply.

As of July 20, 2016, the current round of cotton storage has been running for more than two months, totaling 1 million 423 thousand tons, with a daily average of 25 thousand tons, with a turnover rate of nearly 100%, less than the daily turnover of 30 thousand tons. Even so, cotton producers are still starving.

Due to low volume, traders are stockpiling goods, and new cotton is coming late, and cotton supply is still scarce.

There is a gap between the amount of daily cotton reserves and the real demand of textile enterprises.

Zhu Beina explained that the April 15th paper said that if the turnover rate of 30 thousand tons per day was 70%, the reserves would be increased to 50 thousand tons to ensure supply.

Textile enterprises use this to arrange production and purchase orders.

At present, cotton textile enterprises are worried that the new cotton market will go to the sky, and they want to take more cotton reserves in the storehouse, and the continuous rise of cotton has already pmitted the price to the cotton mill, but it is difficult to pmit to the cloth mill.

A difficult problem for textile entities is to compete with strong traders.

Li Dongmei is in a better position.

Her group is born in Shandong Jining wool textile mill, now has the world's largest cotton spinning, wool spinning to clothing brand two complete textile and garment industry chain.

She said that, besides raw material procurement, we also do some trade for ourselves.

We buy both cotton yarn and cotton.

When we buy cotton yarns, whoever buys them at a lower price will sell them. When they sell cotton, who sells them at a higher price will be better.

Under the sharp rise of cotton prices, most textile enterprises are losing money soon.

As a response measure, spinning enterprises can do limited production or stop production and leave.

The head of a large enterprise complains that "the new start of good ending has been destroyed. It is not easy to insist on these years. Those small factories can stop for a short time, but we can not stop production and so on. The cotton price has been signed, and the price of cotton is still more than a month ago, but it will default if it fails to do so."

Large enterprises with social responsibilities do not dare to stop production. They insist on holding high prices to store cotton. The local government also does not allow these big enterprises to stop production.

In order to retain staff, some large enterprises take part in the start up work, partly stop production, workers take turns to work and take turns training.

Enterprises are suffering from the pressure of loss, and workers are sacrificing part of their income.

And small and medium-sized enterprises can only take the opportunity to close down or temporarily reduce production and limit production, and wait for temporary recruitment when the market is slowing down.

Zhu Beina said, we cotton textile industry has about 2000000 people to obtain employment, the small and medium-sized enterprises are many, the risk resisting ability is weak, the employment basically is the peasant worker, relies on the wages to support the family.

Cotton prices continue to rise, downstream orders can not be supported, more and more textile companies are facing losses or shutdowns.

As the foreign yarn continues to impact on the Chinese market, some small and medium-sized spinning enterprises temporarily shut down, and the banks will immediately come to seal the accounts. In fact, they will declare the end of the business.

On the one hand, the market is over speculation, while the other is the panic of textile enterprises.

When cotton prices surged from the original 9500 to nearly 16000 in the near future and increased by nearly 70%, textile enterprises are eagerly looking forward to the introduction of the policy as soon as possible.

Many enterprises complain that textile enterprises generally believe that the current policy market has created such a situation.

The state reserve cotton has about 10000000 tons. The state subsidized huge amounts of money every year, and the quality of cotton has been reduced for one year by one year.

Now the demand for textile enterprises is large, but it can not be released. The response of the state regulation policy is too slow.

Textile enterprises, on the one hand, want to increase the amount of throwing and prolonging the throwing and storing time; on the other hand, they are worried about the change of policy, and the sharp fall in cotton prices has brought a more severe blow to the enterprises that have been storing up, and the result is that the whole textile industry chain is in a state of panic.

The rise in cotton prices is not caused by downstream demand. It is caused by the lack of timely regulation and control. It is the departments concerned have their own consideration or less consideration from the angle of the enterprises. Although the market parties have made suggestions to the relevant departments for the breakage of the cotton textile industry chain, but as of now, the policy has not yet moved, and the speculative momentum of the futures market has been increasing, which not only disturbs the market order, but also harms the interests of the textile entity enterprises.

After more than a month's time, textile enterprises generally lost their confidence in operation. The worst result seemed to be dimly visible: a large number of enterprises closed down and the workers lost their jobs.