Xinjiang Cotton Textile Industry: Strengthen Risk Management And Actively Respond To Market Uncertainty

On May 25, the 2023 Xinjiang Cotton Textile Industry Seminar, sponsored by Huarong Rongda Futures Northwest Branch, co organized by Xinjiang Exchange Market Investment and Construction Group and Xinjiang Uygur Autonomous Region Cotton Association, and supported by Zheng Shang Institute, was held in Urumqi, Xinjiang. The meeting invited professionals to comprehensively analyze the current macroeconomic situation, sort out the cotton textile industry chain in detail, introduce the cotton planting area and growth in Xinjiang this year, and explain the use of futures and derivatives in enterprise risk management. About 180 representatives from more than 90 enterprises including the cotton industry chain and future and current investment companies attended the conference. The purpose of this meeting is to enhance the risk management awareness and ability of cotton related enterprises, promote the function of futures market, and better serve the high-quality development of the real economy.

Su Xuhong, secretary-general of Xinjiang Uygur Autonomous Region Cotton Association, said in his speech at the meeting that in recent years, Xinjiang's cotton industry has risen from setbacks and moved forward under pressure. With the support of policies, Xinjiang's cotton and textile and clothing industry has demonstrated strong development resilience and anti risk ability, and has shown positive actions in further optimizing the industrial development structure, accelerating the promotion of textile industry chain extension and strengthening the chain supplement, actively exploring foreign emerging consumer markets, expanding Xinjiang's cotton consumption space, and ensuring the stability of Xinjiang's cotton and textile and clothing industry chain supply chain.

Zheng Jiewen, vice president of China Cotton Textile Industry Association, said at the meeting that in recent years, the scale and equipment of China's cotton textile industry have been constantly changing, the production efficiency has been gradually improved, and the output of yarn and cloth has been basically stable. By 2022, China's spinning capacity will reach 110 million spindles, 530000 high-speed looms, 17.87 million tons of yarn and 46.75 billion meters of cloth. In recent years, Xinjiang's cotton textile industry has developed rapidly, covering chemical fiber, spinning, weaving, knitting, printing and dyeing, clothing, home textile, industrial textiles and other industrial chain links, spanning the primary, secondary and tertiary industries, and initially forming a modern textile industry system framework with extensive economic and social driving effects. In view of the impact of the "Xinjiang related Act" on the cotton industry chain, Zheng Jiewen believes that China's textile enterprises are adjusting their product structure to actively adapt to the current situation, and the impact of the "Act" on China's cotton textile industry will fade over time.

Su Chang, chief economist of Hongze Research, said that since November 2022, the trend of various types of assets has been highly correlated with the US dollar. From a long-term perspective, the US dollar index has entered a downward cycle, but in the short cycle, the market may overreact to the depreciation of the US dollar, which may be repaired. From the CRB industrial product index, the global economic cycle is in a downward cycle from the left to the right where there is no turning point. The emergence of the key turning point depends on the time when the Federal Reserve cut interest rates. With the "deleveraging" of the domestic real estate industry and the recovery of the service industry, the annual GDP growth target of 5% is expected to be achieved.

Li Shu'e, a cotton researcher of Huarong Rongda Futures Cotton Research Center, introduced the survey of Xinjiang cotton in May this year at the meeting and made a preliminary forecast of Xinjiang cotton output in the new year. This year is the 13th year that Huarong Rongda Futures Cotton Research Center has investigated the cotton planting area and seedling situation in Xinjiang. The total travel of this investigation is 5000 kilometers. According to the GPS track in previous years, 1156 monitoring points have been surveyed on the spot. The investigation shows that extreme weather is frequent in Xinjiang cotton region this year, delaying the normal growth of cotton seedlings; Affected by the planting structure policy, the proportion of cotton field to grain in the sample plots has significantly increased. In 2023, the average seedling emergence in northern Xinjiang will be 77.99%, the average plant height of cotton seedlings will be 4.69 cm, and the average seedling emergence in Aksu region of southern Xinjiang will be 73.58%, the average plant height of cotton seedlings will be 3.78 cm. It is preliminarily estimated that the cotton planting area in northern Xinjiang will decline by 6.65%, and the cotton planting area in southern Xinjiang will decline by 8-10%. It is estimated that the cotton output in the whole Xinjiang will be 5.675 million tons.

Wang Qianjin, Director of the Market Development Department of Shanghai International Cotton Trading Center, said at the meeting that the cotton textile industry chain still faces multiple contradictions at this stage. The core elements of the cotton fundamentals in 2023/2024 revolve around "marginal improvement of demand", "relatively stable supply" and "high inventory reduction". In general, the probability of export margin weakening is relatively large, and the improvement of domestic sales is expected. The supply side disturbance is generally weaker than that of the previous year. The expectation of Xinjiang's production reduction and revenue capture has formed a strong support for domestic cotton prices. In the later stage, it is necessary to focus on the matching degree between reality and expectation, and dynamically adjust the price target. As for the cotton valuation range in the second half of the year, Wang Qianjin said that before the new cotton came into the market, the cotton market probably would maintain a pattern of "internal strength and external weakness", and the difference between internal and external cotton prices might continue to expand, thus affecting consumption. In addition, the market's judgment on cotton production is still divergent. In general, cotton prices are expected to fluctuate between 15000 and 17000 yuan/ton in the second half of the year.

Wang Yuansu, general manager of Xinjiang Yide Zhongcheng Property Co., Ltd., said at the meeting that the purpose of trading options is to cut losses and let profits run. The most important thing for trading is to find certainty in uncertainty. Wang Yuansu demonstrated the application of options and derivatives in enterprise risk management through protective hedging, compensatory hedging, collar options and other cases. He believes that risk management is an important aspect of enterprise management, and the establishment of a three-dimensional risk management system is conducive to the stable development of enterprises. In terms of enterprise risk management, it is necessary to achieve the management and control strategy of process management, system management and third-party professionals. Managers need to clearly understand the importance of risk control in advance. Scale is an important red line indicator of risk control, and ensuring the enforceability of exposure treatment scheme is the bottom line of risk control.