To Ease The Structural Demand Contradiction In The Market, What Signals Will Be Released By The Policy Of 500 000 Tons Of Reserve Cotton?

Recently, the State Grain and material reserve bureau and the Ministry of Finance issued the No.1 announcement in 2020—— "Announcement on the preparation work of central reserve cotton round sale" 。 According to the announcement, in order to optimize the structure of the central reserve cotton, ensure good quality and enhance the regulation and control ability of the central reserve, part of the central reserve cotton will be rotated in 2020, and will officially start on July 1.

On July 1, 8035.23 tons of sales resources were sold by the reserved cotton wheel, and the actual transaction volume was 8035.23 tons. The transaction rate was 100%, and the average transaction price was 11139.3 yuan / ton. On July 2, 8036.469 tons of sales resources were sold by the reserved cotton wheel, and the actual transaction volume was 8036.469 tons, with a transaction rate of 100%. 35 enterprises participated in the transaction, and the average transaction price was 11372 yuan / ton.

So, What are the signals of this round out policy? What is the impact on the market?

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Give full play to market mechanism

The bottom price of listing sales follows the market

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This round of central reserve cotton will be delivered on the national legal working days from July 1 to September 30, 2020, with a total amount of about 500000 tons. The balanced delivery is implemented. In principle, about 8000 tons of cotton will be sold every working day. This reserve cotton is in line with the market expectations, whether it is rotation scale or rotation time.

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Since June, the news about the central reserve cotton has been heard from time to time in the market. As for the scale of investment, many market participants expect to be in the range of 500000-1000000 tons. On June 15, according to a questionnaire survey conducted by the cotton information center of CCRC, 70% of the enterprises suggested that the state should rotate the reserved cotton appropriately, and the rotation volume within 100000-500000 tons could be acceptable. The total amount of cotton reserve in this round is about 500000 tons, which is within the expected range of the market. In terms of rotation time, For cotton farmers, cotton planting in 2020 has been fully settled, rotation will not affect the enthusiasm of cotton farmers. The launch time is July, which is basically consistent with market expectations.

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From the round out policy, we can see that the price mechanism of this round of policy is aimed at maintaining the stability of the market, which can be seen in three aspects.

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First, we should give full play to the market mechanism and make the bottom price of listing sales follow the market 。 According to the announcement of the State Grain and material reserve bureau, this round continues to follow the market dynamic adjustment mechanism, and is linked with the cotton spot price at home and abroad in principle. The cotton spot price index in the domestic market and the cotton spot price index in the international market are calculated and determined according to the weight of 50%, which is adjusted once a week. This means that this round will continue to give full play to the market mechanism and carry out orderly with the market.

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Second, the first use of round out price circuit breaker mechanism 。 When the domestic spot index is lower than 11500 yuan / ton in the next working day, the cotton market will be suspended for three consecutive working days. During the period of continuous downturn of domestic cotton price, the fuse point of 11500 yuan / ton is equivalent to the bottom price, which means that this round of cotton will pay special attention to the smooth progress without suppressing the market price.

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Third, sufficient policy space should be reserved to reassure the market. According to the announcement, according to the actual rotation situation of reserved cotton and the supply and demand situation of cotton market, the relevant departments of the State shall arrange rotation at the right time, and the specific arrangement will be announced as soon as possible. At the same time, the announcement pointed out that in the process of central cotton reserve rotation, if there are significant changes in the cotton market at home and abroad, according to the needs of market regulation, the State Grain and material reserve bureau, together with the national development and Reform Commission and the Ministry of finance, will make necessary adjustments to the rotation arrangement. Facing the uncertain factors of domestic and international economic environment, this round out policy not only reserved sufficient space for adjustment, but also helped to guide market expectations and maintain the stability of cotton market.

Alleviate structural demand contradiction

Will not depress cotton market price

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"This year, the central reserve cotton rotation started later, nearly two months later than last year. At the same time, the quantity also decreased a lot, which was 500000 tons less than last year." Henan cotton trader Wang Shengli He said that although the start-up time of the central reserve cotton rotation was delayed this year and the quantity decreased by a large margin, it is estimated that it will not have a great impact on the market, mainly because the demand of cotton market this year has a large drop compared with the same period last year.

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As for the impact of reserve cotton rotation on cotton market price, Senior analyst of cotton market in Hubei Province It is considered that from the analysis of the purpose of the central reserve cotton rotation, the relevant institutions have fully considered the current production and operation situation of the textile industry, which is a better choice to respond to the call of the market and support the development of the real economy. In addition, due to the reduction of total rotation and shortening of time, it is expected that the rotation of central reserve cotton will not depress the cotton market price.

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According to the monitoring statistics, Up to now, the national reserve cotton inventory is 2.17 million tons, and most of the remaining reserve cotton warehouse is low-quality real-estate cotton. At present, there are few real-estate cotton left in the market. This will make up for the demand of cotton spinning enterprises for low-quality cotton. With the help of China's domestic cotton spinning pattern, the domestic and international textile enterprises can start the development of domestic and international cotton.

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"Compared with the new cotton on the market, the quality of the central reserve cotton is a little worse, and the price is much cheaper, which is just in line with the needs of textile enterprises." The analyst said, In addition, the purpose of this round of price optimization is to ease the contradiction between the central stock market and the spot market. In addition, the main purpose of this round is to optimize the structure of the cotton market. From the perspective of quantity, the upper limit of 8000 tons per working day, a total of 500000 tons, should be based on the current situation of the cotton market. If the volume is too large, it will have more negative impact on the market, and too little can not meet the needs of textile enterprises. At present, although the new crown pneumonia epidemic is still spreading in many countries and regions, China's cotton and its downstream markets have been greatly affected, but this year's domestic industrial and commercial inventory has not significantly increased compared with the previous year. Once the central reserve cotton is rotated out, the industrial and commercial inventory at the end of the period will significantly increase year-on-year, and the supply will be more abundant. It is difficult to change the pattern of low-level cotton price oscillation in the future.

Enhance the international competitiveness of cotton yarn

Deepening the supply side reform of cotton industry

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In addition to alleviating the structural demand contradiction of cotton in the market, the rotation policy also helps to enhance the international competitiveness of China's cotton yarn. Since May, the foreign cotton yarn price advantage continues to show, and China's cotton yarn enterprises are facing greater external pressure. In May, the price of foreign cotton yarn was generally lower than that of related varieties in China, with an average price difference of about 114 yuan / ton. In June, the gap widened to 485 yuan / ton. With the start of the reserved cotton rotation work, China's textile enterprises will have the opportunity to purchase more cost-effective cotton resources, so that China's cotton yarn can compete with foreign cotton yarn in the process of competition, and obtain market competitive advantage.

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In addition, experts believe that, Rotation policy is a further deepening of the supply side reform of cotton industry in the new situation. At present, the spread of new crown pneumonia is accelerating, the recovery of overseas clothing consumer market is difficult, and the upstream and downstream of China's cotton industry are relatively weak. How to cultivate new growth points and link up the upstream and downstream industrial chain of cotton has become the top priority of current cotton economic work. In 2020, the cotton market will be activated by the central cotton market, and effective measures will be designed to protect the cotton market in 2020. For the textile industry chain, which is currently in the malaise under the influence of the global epidemic, China, as the world's second largest cotton producer and largest consumer, has more significance in guiding the market recovery.