In last year, when most textile raw materials were “crazy”, cotton naturally could not lag behind. Looking back at the cotton market in 2016 at the end of the year, cotton prices have risen rapidly, rising from 9,990 yuan/ton to 16,975 yuan/ton. A closer look at the reasons for the rise in cotton this year can be summarized into two aspects: one is tight market supply, and the other is driven by funds.
The approach to the Spring Festival is a key period for cotton and textile companies to dump inventory, prepare raw materials, and welcome the new year. Most cotton operating companies will actively sell and settle profits to bid farewell to the old and welcome the new; cotton spinning companies will purchase a batch of spinning raw materials to prepare for the cold winter and prepare for post-holiday production. However, in the recent investigation of some cotton-related enterprises in Jiangsu Province, the reporter found that this phenomenon was rare this year.
I am confident that I will not stock up on cotton during the New Year this year
Jiangsu cotton companies reported that the cotton harvest this year was very small. Most cotton companies have sold their lint, and only a few cotton companies still have cotton in stock. Standard grade lint cotton (mainland) is 15,600-15,800 yuan/ton. The factory price of Xinjiang cotton is 200-500 yuan/ton higher than that of the same grade cotton in the mainland. There are few transactions. The quality of Xinjiang cotton is better than that of mainland cotton. The cotton price trend in Yancheng has stabilized and dropped slightly recently. Only some large-scale cotton companies in northern Jiangsu are still accepting seed cotton from cotton brokers, and the unified price is about 3.50 yuan/jin.
It is also understood that textile companies are currently operating at full capacity due to the rush to make orders during the Spring Festival. The inventory of each enterprise is not large, and the raw material inventory of small enterprises is about 15-20 days. As Xinjiang cotton continues to enter the mainland market, and cotton reserves are released in March, the supply of cotton on the market is relatively sufficient, and textile companies do not have to worry about supply issues. According to industry insiders, there have been relatively few cotton spinning orders in the past month. Coupled with the Spring Festival holiday, companies’ demand for raw materials will not increase.
It is understood that in the past, it was a common practice for textile companies to stock up on cotton before the Spring Festival, firstly to increase the resources needed for end-of-year production, and secondly, to prepare for the opening of production after the holiday. However, this kind of business behavior is not feasible now. Several CEOs of Jiangsu Dafeng Textile Industrial Park said that in the past two or three years, the raw material warehouses of textile companies have been empty, leaving only 10-20 days of raw material inventory. Cotton is purchased according to orders, and generally no cotton is left. Or keep less inventory.
Nowadays, textile companies are focusing on sales, reducing the occupation of raw material funds, and lowering financial and product costs. This is undoubtedly a bright move in the relatively saturated market. At this stage, the more decision-making thinking of Jiangsu textile companies is to effectively postpone production and sales to March. Perhaps by then, the price trend of the domestic cotton market will emerge as a new indicator. Therefore, it makes sense for companies not to keep large inventories while ensuring production and seizing the current situation.
Will cotton prices fall in an “L” shape this year?
When the price goes up, everyone rushes to buy, and when the price goes down, they stop and wait and see. This is indeed human nature. Recently, some media have boldly predicted the trend of domestic cotton in 2017, saying that the domestic cotton market experienced a “V”-shaped trend last year. In 2016, domestic cotton supply will be sufficient, and cotton prices lack a basis for sustained growth. At the same time, with the entry of financial funds into the market, it is difficult for cotton prices to fall sharply, and the domestic cotton market may show an inverted “L”-shaped trend. This may also cause some cotton spinning bosses to feel hesitant at the end of the year.
In order to prove this conclusion, the media also cited several reasons.
First of all, from the international perspective, it is believed that cotton supply and demand outside China are slightly loose and have no significant boosting effect on cotton prices. And from a global perspective, except for China, the output of other major cotton-producing countries in the world has increased significantly, providing a solid foundation to ensure supply this year. Moreover, international banks and consulting agencies have also stated that there is limited room for cotton to rise in the future.
Secondly, after the problem of Xinjiang cotton’s transportation capacity from Xinjiang has been resolved domestically, and with clear expectations of the rotation of cotton reserves in March, the supply pressure of cotton has shifted back, and the sales pressure of cotton companies has increased. Therefore, cotton prices lack a basis for rising in the later period. In addition, the relevant reserve warehouses of China Cotton Reserve began to continuously inspect the planned rotation of reserve cotton as early as 2016, making adequate preparations for the rotation in 2017.
It is reported that the amount of cotton reserves inspected so far has been very considerable, which can fully guarantee next year’s round reserves and maintain market stability. Therefore, there is no problem with cotton supply in 2017. Moreover, Xinjiang cotton in 2016 was not only of good quality, but also had a large output, which provided sufficient confidence for the market to increase supply in 2017.
Comprehensive analysis shows that cotton prices are unlikely to fall sharply, and the domestic cotton market may show an inverted “L”-shaped trend, with the price range expected to be 14,500-17,000 yuan/ton.
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