On December 2, Xinjiang cotton imports for 2019 will be officially listed for trading. What are the new changes in this year’s reserve cotton rotation? As the market continues to slump, how can companies use rotating procurement opportunities to manage their market risks? How can storage companies avoid detours and improve the success rate and efficiency of storage? China Cotton Network interviewed the person in charge of the relevant unit and interpreted the key points of the announcement and detailed rules for your reference.
What are the highlights of this year’s rotation policy?
This Xinjiang cotton rotation is the first time six years since the temporary purchase and storage ended. “Storage” has changed significantly. First, the purposes of reincarnation are different. Announcement No. 3 of 2019 from the State Administration of Grain and Material Reserves and the Ministry of Finance shows that the main purpose of this rotation of Xinjiang cotton is “to strengthen the management of central cotton reserves, further optimize the reserve structure, and improve the quality of reserves.” The announcement also pointed out that “during the rotation process of Xinjiang cotton, if there are major changes in domestic and foreign cotton markets, the State Grain and Material Reserves Bureau will make necessary adjustments to the rotation arrangements with relevant departments based on market regulation and other needs.” This is exactly the same as the relevant statement in the announcement in April this year. As the domestic cotton market continues to be sluggish, and even once prices were inverted with international market prices, an appropriate amount of Xinjiang cotton will not only help optimize reserve inventory, but also alleviate the pressure on the domestic spot market to a certain extent. The announcement shows that the relevant national departments do not want the rotation of Xinjiang cotton to affect the normal operation of the market, and will pay special attention to major changes in domestic and foreign markets during the rotation, so they specifically point out the possibility of making policy adjustments when necessary.
Second, the market-based pricing mechanism was adopted for the first time in the round. This round does not implement a fixed price (what some people call a “guaranteed price”), but adopts a pricing method that sets a maximum price and downward bidding based on a certain percentage of the market price. Referring to the average price of the two indices representing domestic cotton spot prices as the market price, it is more credible. The upward floating ratio not only considers leaving an appropriate amount of bidding space for delivery companies, but also considers the necessary transportation costs to designated storage warehouses, similar to the premium for Xinjiang cotton to mainland futures delivery warehouses.
Third, the circuit breaker mechanism is used for the first time in the rotation. In order to avoid domestic rotation leading to irrational increases in domestic cotton prices and weakening the international competitiveness of domestic textile enterprises, this rotation has specially designed a circuit breaker mechanism that is linked to international market prices. The price difference between domestic and foreign cotton is 800 yuan/ton as the condition for automatic circuit breaker, which greatly enhances the flexibility of policy and market linkage. This is also the biggest highlight of this rotation policy design.
How to understand the total incoming volume and daily listing volume
According to the announcement from the National Grain and Material Reserves Bureau, the total incoming volume this time is 500,000 tons. Around 7,000 tons are listed for bidding every day. It can be understood from three aspects. First, the total rotation volume plan of 500,000 tons can moderately alleviate the pressure of oversupply but will not It has a huge impact on the balance of supply and demand in the domestic market. The second is a balanced listing mechanism with a daily listing of about 7,000 tons. This is not only an important measure to avoid excessive periodic interference on the market caused by the rotation, but also facilitates balanced warehousing to reduce the waiting time of enterprises in the storage warehouse. It can be generally understood that during the 4 months of the rotation, China Cotton Storage will purchase quantitative quotations every day, and will not wait when it is late. Third, according to this mechanism, the total volume and daily listing volume are only plans, and the final number of transactions depends on the storage company’s comprehensive judgment on the market and the weighing of its own sales strategy. What is clear is that the country’s participation will not compete with the market for resources. If the listing fails to close, it means that the market does not need to turn to this “sales channel”, and the relevant departments will not “force others to make things difficult” to interfere with the market. China Reserve Cotton Company will comply with the requirements of the announcement and will be listed at a balanced price of about 7,000 tons per trading day during the rotation period, and the fluctuation range will not be very large. Therefore, delivery companies, especially those with high sales pressure, should rationally and comprehensively judge the market situation, and rationally plan sales strategies and delivery rhythms based on the actual situation of the company.
Specific conditions for suspending or restarting transactions in the circuit breaker mechanism for rotational transactions
Article 11 of the “2019 Xinjiang Cotton Rotation Implementation Rules” stipulates that, When the domestic cotton price is higher than the international cotton price by 800 yuan/ton for 3 consecutive working days, trading will be suspended from the 4th working day; when the difference between the domestic cotton price and the international cotton price falls back to within 800 yuan/ton, the price will fall back. Transactions will be restarted on the first working day after. The above mentioned are all working days. We hope that all parties will avoid confusion when calculating statistics.
According to the rotation rules and bidding transaction rules, China Cotton Storage Company and the trading market announce the domestic and international price differences every working day in the morning. If the trading conditions are met on that day, the delivery warehouses and prices listed for purchase on that day will also be announced. quantity. Trading opens at 3 p.m. each trading day.
The quality requirements for incoming cotton are strict. How can companies avoid not being able to hand over the reserves after the transaction?
In order to ensure the ability to regulate and control, the state has stricter requirements on the quality of central cotton reserves. High requirements, this round has clearly defined various quality index requirements and exclusionary agreements for cotton. There are also some discussions among enterprises about the public inspection at the warehouse, and they are worried that the results of the inspection at the warehouse are different from expected, resulting in failure to pay the deposit or even breach of contract.
It should be noted that the public inspection of reserve cotton storage is stipulated in the “Cotton Quality Supervision and Management Regulations”.��Statutory inspection is also a necessary step to ensure the quality of cotton reserves, and there is no need to question it.
How to avoid the risk of not being able to hand over the deposit after the transaction is completed? First of all, before the auction and storage, the company should have cotton that has been put into the supervision warehouse and meets the delivery conditions, because once the transaction is completed, the batch information needs to be submitted as an attachment to the contract within 3 days, and the contract can only be signed after confirmation by the trading market. Second, you must have a basic judgment on the quality indicators of the submitted batch of cotton. If you are not sure, do not bid rashly, because once the contract is signed, the batch cannot be changed. Third, cotton bales in the batch that do not meet the storage requirements can be removed before shipment. The implementation details of this batch have specifically taken into account the actual situation of cotton that has entered the Xinjiang supervision warehouse. The minimum allowed for 186 bales is no less than 170 bales. A batch of 96 packages allows no less than 85 packages. Fourth, if the cotton is newly processed after the implementation details are released, it is recommended that the company selects and batches the cotton according to the delivery requirements before entering the supervision warehouse.
This rotation has particularly strict preventive measures against fraud in cotton quality. In the case of malicious adulteration that damages the quality of cotton, it will be submitted to the relevant departments for legal treatment in accordance with relevant regulations. It is hoped that individual companies will not take chances and try their own way.
How did the relevant units consider the actual difficulties of the transfer enterprises in this round?
First, considering that Xinjiang cotton has entered the Xinjiang professional field before the transfer It takes time to transport the goods from the supervision warehouse to the delivery storage warehouse, and is affected by transportation capacity conditions. This round of implementation details has specifically extended the delivery deadline. Articles 16 and 53 of the Implementing Rules and the “Central Reserve Cotton Procurement Contract” stipulate that the delivery enterprise shall transport the cotton to the delivery warehouse and complete the initial inspection within 45 days after the signing of the contract. In fact, because the delivery batch information needs to be submitted when signing the contract, it cannot be changed after submission. The delivery company only needs to arrange shipment immediately after signing the contract. There is no problem in completing the initial inspection of delivery within the specified period.
Second, for the first time, cotton bales in the batch that do not meet the storage requirements can be directly eliminated and settled according to the actual weight of the qualified cotton bales without the need for bale replacement and other operations, which facilitates the fulfillment of the contract by the storage enterprise and speeds up the process Settlement.
Third, the implementation details clarify the responsibilities of the storage warehouse when the initial inspection is not carried out in time due to reasons at the storage warehouse, or the storage company is not notified in time to confirm the incoming inspection results. It also clarifies the responsibility of the storage warehouse when necessary. The storage warehouse’s charging standards for repackaging, sorting, moving, and entry and exit fees protect the interests of storage companies.
It is necessary to remind the delivery and storage enterprises that it is best to ship the goods in a centralized manner according to the contract. At the very least, they should be shipped to the warehouse in batches so that the warehouse can conduct initial inspection and declare the public inspection in time. Otherwise, the cotton will not be stored in the warehouse. Without preliminary inspection, it cannot be included in the scope of reserve insurance, which will cause a vacuum period in cotton insurance and may increase the risks and costs of storage companies.
The round is about to begin. Companies interested in bidding must carefully read the “Round Round Implementation Rules”, “Notarization Inspection Implementation Rules” and “Round Round Implementation Rules” successively announced by China Grain Reserves Group Corporation, China Fiber Quality Monitoring Center, and the National Cotton Trading Market. “Details of Bidding Transactions”, study relevant rule changes, actively prepare for bidding, make good use of the Xinjiang cotton rotation opportunities provided by the state, effectively control market risks, and maximize corporate benefits. </p
