Cotton Option Listing Brings Opportunities For China'S Cotton Textile Industry Spanformation

"Cotton options listed on the Zhengzhou Mercantile Exchange will provide a more diversified risk management tool for Chinese cotton companies to enhance their resistance to risk and make the development of enterprises more stable." The Xinjiang Uygur Autonomous Region Yuli County Zhong Wang industry and Trade Co., Ltd., deputy manager Zhang Biao said.


On the morning of 28, cotton options were listed on Zhengshang. On the same day, natural rubber options and corn options were listed on the Shanghai futures exchange and the Dalian Commodity Exchange respectively.


China is the largest textile producer, consumer and exporter in the world, and cotton is an important raw material for the textile industry. In June 2004, in order to reform the circulation system of cotton, the listing of cotton futures in Zhengshang has promoted the upgrading of the pricing and risk management measures of cotton related enterprises in China.


Xinjiang Yuli County Zhong Wang industry and Trade Co., Ltd. is a representative enterprise that participates in the hedging of cotton futures and benefits from it. The enterprise is located in Xinjiang, the main cotton producing area of China. It has 60 thousand mu of cotton production base and sells about 15 thousand tons of cotton annually.


In 2018, when Zhang Biao signed sales contracts with traders and textile enterprises in the eastern and central provinces of China, 40% of the sales volume was completed by futures point trading. Zhang Biao said that when the two sides signed the contract, they would no longer be "one price" but decided by the cotton futures price of Zheng Shang, which could enable enterprises to resist the risk of falling cotton sales prices.


However, in recent years, China's cotton textile enterprises increasingly pursue the finer and better effect of risk management, which puts forward new requirements for China's futures market, and cotton option arises at the historic moment.


"In May and June 2018, the price of cotton futures in Zhengzhou merchants rose sharply. Under the single hedge operation, the risk of large margin premium was faced. Even if the company has sufficient capital, it will take time to allocate funds, and there is no risk of additional capital in call options. The head of futures business of a large Chinese trading company said.


Some market participants believe that the main body of China's cotton industry chain, especially the middle and lower reaches of ginning mills, traders and cotton spinning enterprises, has large capital turnover pressure and weak ability to resist risks, which is more suitable for managing cotton price risk with cotton options. At the same time, cotton option will help enterprises improve the efficiency of capital use and optimize risk management business.


Luo Hongsheng, director of the futures regulatory department of the China Securities Regulatory Commission, said that after the launch of the cotton options, financial instruments such as cotton futures, options, insurance and other financial instruments will play an important role in deepening the reform of target prices, exploring new agricultural support and protection system and improving the agricultural subsidy policy.


In Zhang Biao's view, cotton option is a new financial tool for cotton textile enterprises. He hopes that this financial tool can bring new changes to China's cotton textile industry.