The Story Behind The Sudden Outbreak Of Cotton Prices

Cotton prices have continued for two years, mainly due to the subsequent impact of high inventory in China's cotton purchasing and storage policy.

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

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.

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 of 2016, people were immersed in the anticipation of dumping in March.

As a result, a large number of raw material stocks were delayed. It was not until May 3rd that the dumping 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".

It has a significant 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 now is that if the quantity is released directly without package inspection, the cotton produced by the enterprise may be available.

But if the package inspection is carried out, it will be limited in quantity.

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.