Avoiding Price Risk And Improving The Immunity Of Cotton Enterprises

The epidemic has brought pressure on the operation of many entities and faces unknown price risks. At this point, some spot enterprises use the futures market skillfully, through mode innovation, in the very period of production and operation of enterprises to enhance the protection.

Mode innovation

Shanghai textile Investment Trading Co., Ltd. (hereinafter referred to as "Shanghai textile investment") is a wholly owned subsidiary of Shanghai International Group, a large state-owned enterprise directly under the state owned assets supervision and Administration Commission. Its business mainly involves the import and export of bulk commodities such as cotton and re export trade. The annual operation of cotton is over 200 thousand tons, and the annual main business income scale is nearly 20 billion yuan. Because of its considerable experience in using cotton futures and PTA futures, the company was awarded the first "industrial base" of Zhengzhou commodity exchange in 2019.

Although the outbreak is fierce and coincides with the Spring Festival, it has a great impact on the cotton industry. However, Shanghai textile investment actively uses the futures market to innovate the mode, which not only guarantees its smooth operation, but also provides an effective solution for the upstream and downstream customers of the industrial chain.

After the outbreak of the outbreak, Shanghai spinning and weaving business team before the futures market resumed trading in February 3rd, and Jiangsu, Anhui, Hubei and other mainland textile enterprises customers to communicate. They found that most cotton stocks could last for only a week, and in the background of the spot market stopped trading and the logistics across the province were strictly controlled, the downstream industry chain was extremely anxious for cotton purchasing. Following the experience of Shanghai spinning and marketing and market participation, it is considered that there is a possibility of finding inertia after the festival. However, the low position is also a good opportunity to purchase. Therefore, Shanghai textile investment has customized various solutions for some downstream customers.

After the first trading day of the Spring Festival, the prices of most domestic varieties have been thoroughly explored. The cotton futures price is no exception. The 2005 contract of zhengmian main contract closed at the end of the day. After that, it opened up sharply in the next 4 days, creating a new low of 12130 yuan / ton in the past 4 years.

At this point, Shanghai textile investment through its own "seed cotton" mode in the acquisition link cotton resources timely guarantee, lock processing profit, according to the fixed price sales plan, after the festival in the futures market in a timely manner to carry out low position operations.

The so-called "seed cotton jacket" is the innovation business launched by Shanghai textile and investment in 2019. In the acquisition link, combine seed cotton, cottonseed, futures disk, quality premium and other factors to determine hedging cost and lock in profits. This business will closely link seed cotton purchase with futures market, advance insurance, guide acquisition, lock in profits, and effectively avoid the risk of short and crowded windows in the new cotton centralized listing period.

Active use of off-site platforms

Making good use of the OTC market and walking on two legs is another key to Shanghai's spinning investment in the special period to deal with market risks.

At present, cotton related enterprises have been widely involved in the futures market, and there are more and more spots in the form of standard warehouse receipts. As of February 14, 2020, the cotton warehouse receipt (Registration + forecast) of Zhengshang has exceeded 42 thousand and 500 pieces, totaling about 1700000 tons, which has continued to refresh the historical record, accounting for more than 30% of the total cotton business inventory in the same period.

In order to comply with the market trend and the trend of development, the comprehensive business platform of Zhengshang based on the existing warehouse receipts trading mode, in 2019, the Shanghai Pudong Development Bank was introduced to introduce the standard warehouse receipt buyout repurchase business model. Customers can directly butt with banks to achieve T+0 transfer of funds. They can get financing on the same day, and guide the cost of warehouse receipts financing funds downwards, in order to achieve the double effect of increasing efficiency and reducing capital, and further promoting the integration of production and finance.

Based on this business, before the Spring Festival holiday in 2020, Shanghai textile was invested to cope with the potential market change risks during the long holidays. In January 21st, 4493.944 tons of cotton warehouse receipts were traded through Zhengzheng comprehensive business platform, and more than 50 million yuan of liquidity was received on that day. After the Spring Festival holiday, the futures market began to ferment under the influence of the epidemic. At this time, Shanghai textile investment has sufficient liquidity to deal with market risks. According to statistics, Shanghai textile invested 44815.517 tons of cotton standard warehouse receipt from February 3rd to February 14th, and received more than 450 million yuan of liquidity and repurchased 22096.233 tons of warehouse receipts.

A person in charge of spinning and weaving in Shanghai told reporters that the measures adopted in these extraordinary periods are based on the correct understanding and rational utilization of the futures market.