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Market Dynamics: Cotton Price Rebound Will Disturb Market Fluctuation

2022/11/23 18:44:00 0

Cotton Price

All along, cotton textile enterprises are deeply disturbed by the fluctuation of cotton price.

Since October, the continuous decline of cotton prices at home and abroad has made the expectation of "gold, silver and ten" evaporated. However, in the past two weeks, domestic and foreign cotton prices have swept away the past haze and rebounded. The cotton price of Zheng returned to the "thirteen" level, once approaching 13500 yuan / ton, and the US cotton price was up and down for three consecutive days, with an increase of more than 20% within the week. After two years of low cotton prices at home and abroad, such a strong rise has injected confidence into the market.

So, what are the reasons for the rebound in cotton prices? Does this wave of cotton price rebound mean the opening of the rebound market? In the face of fluctuating cotton price, how should cotton textile enterprises deal with it to avoid risks?

   Multi factor superimposition favors cotton price rebound

"The recent rebound in cotton market can be seen as short covering after oversold. The influencing factors involve many aspects. From the perspective of supply and demand, it has something to do with the postponement of the centralized listing period of new cotton." Talking about the recent fluctuations in cotton prices, Hua'an futures analyst Yao Yu said.

At present, Xinjiang seed cotton harvest has entered the finishing stage. Affected by factors such as cotton farmers' reluctance to sell and epidemic situation control in main cotton producing areas, cotton listing in 2022 / 2023 is very slow. As of November 14, the national cotton public inspection volume was 503300 tons, far lower than the progress of the same period in previous years, and decreased by 75.83% compared with the same period in 2021. Among them, the cotton public inspection volume in Xinjiang was 486000 tons, which was 76.35% lower than that in the same period in 2021. At present, the total cotton processing capacity in Xinjiang is about 1.63 million tons, which is lower than the same period in previous years and 33.67% lower than that in 2021.

In previous years, with the acceleration of cotton listing, market supply pressure continued to increase. And this year, the delay of cotton listing period, no doubt also delayed the supply pressure of cotton market. However, this situation will not last too long. Cao Huiqing, President of cotton farmers' branch of China Cotton Association, said that with the relaxation of epidemic control, farmers' reluctance to sell seed cotton and the return of cotton in and out of storage and public inspection back on track, Xinjiang cotton processing and public inspection progress in 2022 / 2023 will gradually be improved, and new cotton supply is expected to make efforts in late November and December.

"As the futures market more reflects an expectation, the rebound of Zheng cotton futures price reflects that people's expectation for the future market is improving after the continuous downturn of the market. What can boost the confidence of market expectation is the positive signal brought by the policy." Yao Yu said that on November 11, the National Health Commission announced 20 measures to further optimize the prevention and control work, emphasizing scientific and accurate prevention and control work. This was seen as a positive signal of the turn of macro policy, and also promoted the short-term rebound of Zheng cotton futures. From an international point of view, if the peak of US inflation is confirmed and the US dollar exchange rate continues to fall, it will create more favorable conditions for the recovery of cotton prices at the macro level.

   Supply and demand pattern remains unchanged

The short-term rebound of Zheng cotton futures price to a certain extent reflects the improvement of market confidence, but does this mean that the cotton price which continues to stay at a low level in the early stage will start a big rebound?

"The fluctuation of cotton price before and after the listing of new cotton belongs to normal fluctuation. This round of rise of cotton price at home and abroad is mainly due to the improvement of market expectation for the future, and it is an oversold rebound caused by news at the macro level. The key factor affecting the trend of cotton price is still the supply and demand fundamentals, and the recovery of downstream consumer demand." Yao Yu analyzed that at the end of the year, the demand for raw materials consumption in the upper reaches of the textile industry chain will return to the off-season, and the downstream consumer end will still take de stocking as the main task, marginal consumption demand has not sent out obvious improvement signal, and the US cotton market is also lack of vitality. In the background of global economic growth recession, cotton is difficult to be alone, so the rebound in cotton prices does not mean the opening of market reversal.

From the supply side, a large number of cotton in the northern hemisphere were listed. The latest cotton supply and demand report issued by the US Department of agriculture increased the US cotton production. The pressure on the price of ice cotton will drag down the trend of Zheng cotton. Turning to China, thanks to the increase of cotton planting area and the suitable natural climate, China's cotton production is showing a high-yield trend this year. The total output is expected to be about 6 million tons, an increase of 2% over the previous year. In addition, China's first batch of central reserve cotton rotation work ended on November 11. The loose supply pattern and short-term cotton commercial inventory digestion channels have been reduced, so that cotton prices do not have the conditions to rise significantly.

From the demand side, the downturn in the terminal market has increased the business pressure of cotton textile enterprises, and cotton procurement is mainly based on "buy as you use". According to the reporter of China Textile News, this year, many spinning mills reported that the orders were not good, most of them were small and short, and they could not get the medium and long orders. This is also confirmed by the latest survey of China Cotton Textile Industry Association on cotton textile enterprises. The survey shows that since November, the pure cotton yarn market has been depressed, the sales of cotton yarn is not smooth, and the product inventory has increased significantly, and the sales mode is mainly on credit. Due to the shortage of terminal orders, textile enterprises have difficulty in goods delivery, and the inventory continues to accumulate. Looking forward to the future, it is more difficult for textile enterprises to predict the increase of orders. As there are many uncertain factors in the market, enterprises have a strong wait-and-see mood.

"Domestic demand is insufficient, so that downstream spinning and weaving enterprises to reduce raw material inventory. Once the downstream inventory is completed, cotton demand will soon recover." Yao Yu believes that the current supply and demand of cotton prices lack of long-term support, and it is difficult to bring about a trend reversal of cotton prices. It is expected that cotton prices will show an oscillation trend in the future.

   Looking forward to stable cotton price, textile enterprises seeking change and avoiding risks

For cotton textile enterprises, the fluctuation of cotton price is a daily problem faced by enterprises. The fall of cotton price means that the price of yarn will also decrease accordingly, thus reducing the profit space; Cotton price rise, will usually produce price conduction is not smooth, resulting in yarn price is difficult to synchronous rise phenomenon.

"Cotton price stability is what cotton textile enterprises expect." Ye Jianchun, chief engineer of China Cotton Textile Industry Association, said that low prices would affect cotton farmers' enthusiasm for planting cotton, while high prices would not be conducive to the healthy development of the industrial chain. Facing the fluctuating cotton price, ye Jianchun believes that on the one hand, cotton textile enterprises should learn to keep pace with the times, borrow the new purchasing mode to avoid market risks, on the other hand, they can cope with the fluctuation of cotton price by changing product structure and using new fibers.

At present, "cotton + Internet" era has come. Yao Yu pointed out that the "old routine" procurement mode of the cotton textile industry has been challenged by the Internet trading mode. If it is not adjusted in time, enterprises may miss the opportunity for development. He said that cotton buyers can see the distribution and detection indicators of the source of goods on the mobile phone, and then select the nearest warehouse for sampling according to the order situation of the enterprise, and complete the whole purchasing process on the mobile phone and computer, which will greatly simplify the cotton purchase process.

With the advent of the Internet era of cotton procurement, cotton sales and procurement of cotton textile enterprises have entered the "cotton distribution era" from "cotton selection era". Cotton textile enterprises do not need to maintain a large inventory of cotton, can wait for cotton yarn orders signed, and then start looking for suitable raw materials.

At the same time, in the face of the fact that the supply and demand gap of domestic cotton will exist for a long time, in order to reduce the dependence on cotton, many enterprise operators have realized the necessity of product structure adjustment, and how to transform the products from low-grade and extensive type to high-grade and fine-grained products has become the problem that enterprises begin to think about. Actively develop high value-added non cotton fiber yarn, reduce the cotton ratio, in order to avoid the risk of cotton price fluctuations, become the focus of enterprise action.

The experience of Shandong Lingxian Hengfeng Textile Co., Ltd. (hereinafter referred to as "Lingxian Hengfeng") is worth learning from. Lingxian Hengfeng, with 150000 spindles production scale, mainly produces pure and blended special yarns with various new fibers such as modal and Tianzhu. Even in the environment of the downturn in the textile market, the enterprise still produces at full capacity. At present, the inventory of Hengfeng products in Lingxian county is only 500 tons, which is equivalent to the output of the enterprise for more than 10 days.

"As the main use of new fibers, Lingxian Hengfeng cotton consumption is very small, less than 20%. This not only reduces the dependence of enterprises on cotton, less affected by cotton price fluctuations, but also helps to increase the added value of products and enhance the market competitiveness of enterprises." Liu Yimin, deputy general manager of Lingxian Hengfeng Business Department, said that in the current market environment, small and medium-sized cotton textile enterprises with low-grade and similar structure products are not competitive in the market. Once they encounter wind and grass, they will be defeated. The recent fluctuation of cotton price has little impact on enterprises. Thanks to the R & D and pursuit of differentiated products, enterprises will still firmly go on the road of differentiation in the future.


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