A famous saying in Dickens’ “A Tale of Two Cities”: “It was the best of times, it was the worst of times”, I think is particularly appropriate when applied to the current cotton spinning industry. Against the background of economic recession, the spread of the COVID-19 epidemic, changes in Sino-US relations, and reduced consumption, the cotton spinning industry has not been spared. Although China’s scenery is unique, it cannot be immune. In view of the current numerous changes in the cotton market, how should the industry actively adapt to the post-epidemic era?
The volatile upward trend of the cotton market needs new boosting force
Judging from the current spot transactions, cotton futures prices have fallen and transactions have increased; cotton futures prices have risen and transactions have increased. The decrease shows that there is demand in the market, but in view of the current severe situation, all parties in the enterprise are unwilling to keep inventory. Judging from the price comparison between cotton and cotton yarn, the profit of spinning is very small, and textile companies have insufficient motivation to actively increase inventory, which also restricts the price of cotton. From an overall perspective, for Zheng cotton to stabilize above 13,000 yuan/ton, new contradictions and new impetus are needed, or the global epidemic is under control, consumption continues to improve, and the industry takes the initiative to increase inventory. The rise in cotton prices requires the linkage of the consumer, clothing, yarn mills and other links. If a single link rises, it will be difficult to sustain without the cooperation of other links. The important thing is that the price can be transmitted smoothly through the industrial chain.
The core variable of the cotton market is that the epidemic does not have a unilateral market situation
This year’s epidemic has indeed led to a reduction in terminal consumption, and the degree of recovery from the epidemic is the core . The epidemic in Europe has recently rebounded and the epidemic in India is still expanding. In the short term, there is no driver for improvement in consumption. There is no upward driver and the conditions for a sharp rise are not met. Domestic yarn stocks have remained low, indicating that it is difficult for prices to continue downward, and yarn prices are at a low level in the past five years. In this case, the pressure to push down cotton prices is limited, and the support below is strong. Generally speaking, there is no trend downward now, and the core variable for the upward trend is still the recovery of consumption brought about by the changes in the epidemic. From the perspective of industrial changes, the capacity utilization rate of the entire terminal is not high. When the gray cloth link’s operating rate is at its lowest, it reaches 30-40%. The high probability event in the future is that the production capacity will be restored.
The specific effects of the suspension of the Xinjiang cotton export ban will gradually appear
Some foreign companies have now asked Chinese textile companies to write letters of commitment, demanding not to use Xinjiang cotton. Although implementation is difficult (cotton and chemical fibers are mixed together during spinning, it is difficult to distinguish the difference), Chinese textile companies do not dare to take risks. If they sign a commitment letter, they may be blacklisted if Xinjiang cotton is found to be used. Therefore, companies will try to avoid using Xinjiang cotton. The worrying situation is that some companies in the EU are also following suit. China’s cotton textile exports account for 30-40% (Europe, the United States and Japan combined). If the allies of the United States all choose sides, the impact may be huge, but this effect will slowly fade. It shows that after all, Xinjiang cotton is still mainly consumed domestically. The U.S. ban on Xinjiang cotton is an opportunity for chemical fiber yarns. A textile company in Henan also said that all production now uses Xinjiang cotton. If the ban on Xinjiang cotton is implemented, the impact will be very large.
The divergence between cotton and cotton yarn prices has become wider and wider
Since the recovery of the epidemic, cotton prices have been rising slowly, while yarn prices have been stable with some declines. The trends of the two diverged. A certain textile company said that it feels very anxious now. In August, the price of cotton increased by about 1,000 yuan/ton, while cotton yarn dropped by 300-500 yuan/ton. Calculating the cost of cotton yarn based on the cotton consumption rate, the textile factory had no profit at all. For example, the futures price of cotton in August is around 12,800 yuan/ton, and the price at the factory is around 13,000 yuan/ton. Based on the cotton consumption rate of 1.08-1.1, the raw material cost is more than 14,000 yuan/ton, plus labor, electricity, finance, depreciation and other expenses. A ton of cotton yarn can only be profitable if the price is above 21,000 yuan/ton, but now the market price has dropped to 20,000 yuan/ton. Although enterprises hope to increase prices, downstream enterprises do not accept it. If they insist on increasing prices, they will lose customers in the fiercely competitive market. A textile company in Wugang said: “Currently, the company is losing 500-1,000 yuan per ton of cotton yarn produced. It has been losing money every day for 3-4 months. It continues to struggle to maintain production and is unwilling to stop production, because once production is stopped, Maybe it won’t start.”
Ensure that inventory remains low and strictly control risks
Currently, cotton yarn inventories of various home textile companies remain low, basically controlled within half a month, and some even The company has zero or negative inventory and is overwhelmed with orders. There is no profit and it can only maintain normal operations. Some companies said that because they are digesting previously low-priced raw materials, they will make a little profit. If they buy now and use it now, they will definitely lose money. Therefore, most textile companies will lose money this year. At present, the company’s cotton inventory is less than a month. According to common sense, it should consider replenishing the inventory. However, there is no profit in textiles. Cotton can only be bought and used as the market goes, and it is not dared to keep inventory. A trading company in Heze said: The textile industry is now facing large-scale losses. More than half of the companies are experiencing production suspensions, semi-suspensions, and production restrictions, and only a few are running at full capacity. It is understood that there are two main reasons for the current decline in corporate inventories. , firstly, entering the “Golden Nine and Silver Ten” production and sales peak season, the trend of downstream orders has improved; secondly, companies have reduced the operating rate, keeping inventories low. According to the current market, the more inventory, the greater the losses; thirdly, by adjusting the product structure, cotton yarn has been reduced Yield and control risks.
Xinjiang’s cotton processing capacity is large and prices are high
The interviewed companies believe that due to the low purchase price of seed cotton last year, they are given Very good basis difference, I went to Xinjiang contract factory this year to explainSignificantly increasing, ginners have serious overcapacity. Compared with last year, the purchase price of seed cotton this year is expected to open higher or move flat. However, compared with the same period in previous years, the absolute price is still at a low level. Based on this year’s output and processing tasks, cotton acquisition will be completed in less than two months, and basis trading may not be as comfortable as last year. At present, in the purchase of cotton in Xinjiang, the purchase price of hand-picked cotton has reached 6.7-6.8 yuan/kg, or even 7.0 yuan/kg, with a discounted cost of more than 14,000 yuan/ton; the purchase price of machine-picked cotton is basically 5.7-5.8 yuan/kg. Now The small quantity is not representative of the overall price. However, judging from the sentiment of cotton companies, the rush to harvest seed cotton this year is a high probability event, because according to the relevant agreement of the contracting factory, failure to harvest will definitely result in losses, and there is still some hope for a rush to harvest.
Real estate cotton production and quality are stable
It is understood that the color grade of Shandong seed cotton this year is slightly better than last year, and the length is similar to last year, at 29mm Around; Qiangqiang has not been tested on a large scale, and the horse value may be a little lower than last year. Last year it was basically below 5.0 (B2), and this year it is around 3.7. Recently, affected by the rush to harvest cotton in Xinjiang, the purchase price of mainland seed cotton has increased slightly. In the early stage, the factory price of mainland seed cotton was as low as 3.2 yuan/jin (the purchase price in the same period last year was only 3.05 yuan/jin), and now it has risen to 3.3 yuan/jin; cottonseed has increased from 1.26 yuan/jin. /jin rose to 1.37 yuan/jin, and the lint processing cost was calculated to be 12,700-12,800 (gross weight). Therefore, the loss was 100-200 yuan/ton based on the market price, and a price inversion occurred. It would be okay if the early purchase of seed cotton can spread the cost, but now the seed cotton processing is at a loss and the market has begun to wait and see.
After overall research, the author believes that there is no doubt that cotton and textile companies are facing huge pressure this year. Only when the tide recedes will we know who is swimming naked. Cotton companies purchase and process lint cotton at high prices. If they can successfully hedge, they may be able to hedge market risks. However, in a fully competitive market, can arbitrage operations provide opportunities, or how many companies can seize the opportunities once they are given. Faced with limited Xinjiang cotton resources, the continued expansion of processing capacity is abnormal in itself. For textile companies, the external environment of the market is complex, the price of floral yarns has diverged, and business operations continue to be in trouble. Near the end of the year, textile companies may see a wave of closures, because companies with high debts may be unable to follow up in the face of the withdrawal of bank funds. Once sufficient funds are raised to maintain normal production, companies with light debt will continue to move forward steadily. In the post-epidemic period, the cotton spinning industry will eventually break through the darkness and usher in the dawn. Whoever can persist to the end will share in the final feast.
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