The “changing face” of the cotton market stimulates the enthusiasm of enterprises to participate in futures
In recent years, domestic cotton planting area and output have gradually declined, and insufficient production has become the norm. The shortage of raw material resources and rising labor costs have triggered the transfer of cotton downstream industries to major cotton producing areas and areas with low labor costs, and the market structure is undergoing major changes.
These changes have increased the linkage between domestic and foreign cotton markets, and the allocation of market resources has become more diversified. The need for industrial enterprises to use futures and other financial instruments and platforms to avoid risks and stabilize operations has become more urgent. In addition, cotton yarn futures are expected to be listed, and the cotton industry futures variety series will be improved, which will further stimulate the enthusiasm of real enterprises to participate in the futures market, and the futures market’s ability to serve the real economy will be greatly improved.
1. Insufficient cotton market production needs to be normalized
In recent years, my country’s cotton planting area has declined significantly. Many farmers in traditional cotton-producing areas no longer grow cotton, resulting in my country’s cotton output declining year by year.
At present, insufficient production and demand in the domestic cotton market have become normal, and with the further shrinkage of planting area in producing areas, this market development situation has become more severe. After the state reserve cotton quilt was digested, the domestic cotton market demand had to rely on a large amount of imported cotton to meet the demand, and a new market development environment has basically been formed.
At the “2016 Shijiazhuang Cotton Industry Forum” held recently, Yongan Futures cotton researcher Kuang Bo told reporters that what the market is worried about now is that in 2-3 years, when the state reserves of cotton are digested, even if Domestic cotton prices have risen close to the production cost, or even higher than the cost, and the cotton planting area in the mainland may not be able to recover quickly.
“If the planting area in inland areas cannot be restored by then, how will the large production and demand gap in the domestic cotton market be filled? If cotton output remains stable at the current level in 2-3 years, there will be no doubt about the future cotton production. There is a possibility of a sharp rise in prices,” Kuang Bo said.
According to the reporter’s understanding, my country’s current annual cotton output remains at about 4.5 million tons, and the annual market demand is about 7.5 million tons. There is a supply gap of about 3 million tons in the domestic market every year, mainly relying on the state reserve Cotton sell-off and imported cotton to compensate.
Market agencies predict that if domestic cotton production continues to decline in the next few years, coupled with changes in climate and export policies in major cotton-producing countries in the international market, the fabric industry in India and other countries will develop rapidly, and domestic cotton supply will It will become increasingly tense. Against the background of normalized production shortages, the domestic cotton downstream industry often faces pressure from fluctuations in raw material prices, which is not conducive to the long-term stable development of the industry.
“Cotton price and supply influence each other. Since 2015, cotton production has been lower than consumption, unfinished stocks have been declining, and the inventory-to-consumption ratio has been lower.” Kuang Bo said that from the cotton market supply and demand is large From the perspective of the pattern, the probability of cotton prices showing a strong oscillation trend is relatively high, and the market will not have an obvious downward trend. Analyzing the small cycles of supply and demand changes in the cotton market, the rise and fall of cotton prices depends on the fluctuations in the periodic supply and demand relationship, because cotton is harvested in one season for use throughout the year.
As of now, domestic cotton commercial inventories and industrial inventories are at the lowest level since 2010. The inventory pressure of spinning yarn is obviously greater than the inventory pressure of natural cotton cloth, which deserves the market’s attention. At the same time, the variable of my country’s cotton consumption lies in the changes in domestic and foreign price differences. In addition, judging from the changes in monthly import volume of spinning yarn import source countries, Vietnamese yarn has grown rapidly in recent years, Pakistani yarn has been stable, and Indian yarn has declined rapidly.
Kuang Bo believes that if the domestic cotton market demand remains at around 7.5 million tons, based on the estimated domestic cotton production so far this year, import volume, state reserve cotton sales, etc., next year Before the cotton from the state reserve begins to be rotated out in March, the domestic cotton market stock is sufficient to meet demand.
However, Kuang Bo reminds investors that they need to pay close attention to the following issues:
First, the rotation price of the state reserve cotton is determined based on the international and domestic market prices. With the increase in domestic and international market prices, the rotation price of the state reserve cotton in March next year will definitely be higher. It needs to be raised, but due to the discount of reserve cotton, the final purchase price of textile enterprises will definitely be lower than that of new cotton.
Second, there is still a long way to go before the cotton reserves are released.80,000 lots. From January to October this year, the average daily trading volume once again reached 350,000 lots, and the average daily open interest reached 320,000 lots.
“In recent years, cotton and yarn prices have fluctuated greatly at home and abroad. The enthusiasm of industrial enterprises to enter the Zhengzhou cotton futures market has continued to increase, and the market turnover rate has also begun to increase.” Related to Zhengzhou Commercial Exchange The person in charge told reporters that with the increasing enthusiasm of corporate customers to participate, from January to October this year, the average daily trading volume of corporate customers reached 111,000 lots, and the average daily position was 132,000 lots.
For cotton-related companies, futures tools can make business operations more stable. According to industry insiders, Zheng Cotton Futures has played an important role in assisting cotton-related companies to control risks and operate stably. At this stage, many large and medium-sized ginners, fabric companies, natural cotton and workwear manufacturers in China are conducting hedging operations in the futures market. At the same time, many cotton and cotton yarn traders and importers are also using it. Futures markets are risk averse.
The reporter interviewed some cotton-related companies and found that some cotton-related companies have used the futures market as a tool to effectively resist the risk of large fluctuations in cotton prices. The company’s ability to withstand the risk of price fluctuations has been significantly enhanced, and operating efficiency has improved. .
4 industrial chains look forward to the listing of cotton yarn futures
Currently, Zhengzhou Commodity Exchange is actively promoting the listing of cotton yarn futures. Industry professionals believe that if cotton yarn futures are launched, it will be a major benefit to the entire cotton textile industry chain. The cotton textile industry chain involves a large number of companies, and the price transmission mechanism between cotton, cotton yarn and downstream end products is very complex. If we do not actively utilize the hedging function and price discovery function of the futures market, the operations of fabric companies will be very passive.
“The listing of cotton yarn futures can benefit fabric companies in many aspects.” Representatives of cotton-related companies participating in the forum believed that the uncertainty of upstream cotton raw material prices and downstream cotton yarn orders , causing fabric companies to have great risk exposure. Through the combined operation of cotton futures and cotton yarn futures, the uncertainty of fabric companies’ operations will be greatly reduced. In addition, using futures and spot arbitrage operations can greatly reduce corporate operating risks. Fabric companies are buyers of cotton raw materials and producers and sellers of cotton yarn and natural cotton products. They can minimize risks and lock in profits in advance by using basis operations.
In addition, cotton yarn futures can also assist companies in arranging production plans reasonably. At present, most fabric companies arrange production based on orders. Once market orders are not ideal, business operations will be in trouble. After cotton yarn futures are launched, fabric companies can sell cotton yarn for forward delivery in advance, which can ensure the continuity and stability of production.
On the whole, the market environment of domestic cotton and its downstream products is undergoing major changes. The linkage between domestic and foreign cotton and product markets is strengthening. Cotton-related companies are participating in domestic and foreign futures and spot markets through a variety of methods. Through combined futures and cash operations, the allocation of market resources becomes more diversified. At the same time, the market’s demand for futures business innovation is more urgent. Industry insiders estimate that with the launch of cotton yarn futures in the future, the cotton industry futures variety series will be improved, the function of cotton futures in serving the real economy will be greatly improved, and the Zheng cotton futures market is expected to usher in a new stage of development.
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