Will cotton prices bottom out in 2016?

It is the end of the year and the beginning of the year, and the cotton textile industry has begun to have heated discussions on the factors that will affect the operation of the industry in the new year. How cotton prices change, when cotton from the state reserves will be released, and what impact Xinjiang’s cotton textile production capacity will have on mainland spinning companies have become the topics of greatest concern to the industry chain. In order to have a more detailed understanding of the development direction of the cotton textile industry in the new year, this edition has launched a series of reports on the “2016 Focus on Factors Affecting the Operation of the Cotton Textile Industry” from this issue, covering cotton prices, domestic cotton market inventories, and Xinjiang cotton and cotton yarn production capacity. , analyzing the development environment of the industry in 2016.
After the reform of the cotton policy, in early 2015, the industry’s confidence in the operation of the industry increased greatly. It was believed that although there will be a difficult transition period, the operation of the industry will definitely get better and better. Now that 2015 has just passed, reporters found in interviews that the situation during the transition period was obviously worse than the company expected. Enterprises generally said that business operations in 2015 were more difficult than in 2014, and an important factor was the impact of cotton prices. In addition to the strong downward pressure on the economic environment and insufficient downstream demand, the downward trend of cotton prices has caused serious losses in orders for cotton textile companies, and even the phenomenon of “taking every order, paying for every order” has occurred, and companies have complained endlessly.
In 2016, the cotton textile industry is still affected by many factors such as quality and price. With cotton production reduced, policies continuously optimized, and the market price mechanism becoming more mature, will my country’s cotton prices bottom out in 2016? Will the cotton textile industry turn around? In this regard, relevant people said that my country’s cotton supply is seriously greater than cotton consumption. Under such circumstances, it is really difficult for cotton prices to bottom out.
Cotton demand has not improved
For a long time, my country’s cotton price has been the most helpless link in the cotton textile industry chain. In the era of cotton purchasing and storage, the price of cotton was determined by the state, but relatively speaking, the price was stable. After the implementation of cotton policy reform, cotton prices gradually became market-oriented and gradually integrated with the international market. Cotton prices were in a volatile downward trend. The instability of cotton prices and the still existing price gap between domestic and foreign cotton have caused a significant reduction in cotton consumption in our country.
During the “Twelfth Five-Year Plan” period, my country’s cotton fiber consumption continued to decline, from 12 million tons per year in previous years to 7 million tons. According to relevant agency predictions, my country’s cotton fiber consumption will still drop to 6.5 million tons in 2016. about. At the same time, the substitution of chemical fibers and other fibers for cotton fibers is increasing, and many cotton textile companies tend to produce blended yarns.
Li Nan, general manager of Louis Dreyfus Company, believes: “In fact, China is not not using a lot of cotton, but is using a lot of other people’s cotton. Although China’s cotton consumption is declining, if the amount of imported yarn is calculated, China’s cotton consumption The decline is not significant.”
The latest forecast of the International Cotton Advisory Committee in January is that in 2015/2016, affected by the low international cotton prices, China and the southern hemisphere cotton-producing countries have reduced production. The global cotton output is expected to drop significantly to 24.55 million tons, a year-on-year decrease of 5.9%; consumption is 24.67 million tons. tons, a year-on-year increase of 1.1%; as consumption exceeds production, global cotton ending stocks were reduced to 21.13 million tons. In other words, from a global perspective, supply and demand in the cotton market are basically balanced. At present, the international cotton market has undergone great changes. After five years of growth, global cotton stocks have reversed, but only in China, supply still exceeds demand.
On how to improve my country’s cotton fiber consumption, Li Nan pointed out that the way to solve China’s cotton problem is to expand consumption. At present, my country’s cotton consumption is not large, but many domestic companies use foreign cotton. Only by increasing domestic cotton usage can there be a way out for cotton reserves.
The supply of market resources is relatively large
Another important factor that puts huge pressure on my country’s cotton prices is my country’s huge cotton inventory. my country’s cotton supply is seriously greater than cotton consumption. Under such circumstances, it is really difficult for cotton prices to bottom out.
In 2014, my country’s total cotton supply was approximately 20.8 million tons, and consumption was approximately 7.2 million tons. Supply clearly exceeds demand, and inventory accumulation reached 14.8 million tons. In 2015, supply dropped to 20.1 million tons due to reduced production, demand dropped slightly to 7.13 million tons, and inventories dropped slightly to 14.17 million tons, but still at a high level. Among them, the supply includes state reserves of cotton, new cotton, imported cotton, and carryover stocks in the hands of enterprises. As of the end of 2015, the state’s cotton reserves were still around 12 million tons. Regarding my country’s current cotton inventory, relevant people said that based on my country’s current cotton consumption level, even if cotton farmers do not grow cotton and textile companies do not import cotton, it will take at least two years to consume the 12 million tons of state cotton reserves. It can be said that the impact of such a huge inventory on the price of cotton can only be described in one word, down!
According to data released by the National Bureau of Statistics, in 2015, my country’s cotton sown area was 3,799.0 thousand hectares, a decrease of 423.4 thousand hectares or 10.0% compared with 2014. The country’s total cotton output was 5.605 million tons, a decrease of 574,000 tons compared with 2014, a decrease of 9.3%. Previously, the relevant person in charge of the National Development and Reform Commission stated that cotton imports will continue to be strictly controlled in 2016, and the import quota within tariffs will still be limited to the WTO’s agreed bottom line of 894,000 tons. In other words, 2015/In 2016, my country had at least 18 million tons of cotton available for cotton textile enterprises, which is about three times my country’s annual cotton consumption.
Therefore, many heads of textile enterprises said that in 2016, the price of cotton from my country’s national reserve is likely to drop again compared to before, and may even lead to a new round of decline in my country’s cotton prices. The timing of cotton reserve rotation in 2016 has also been the focus of the industry. At present, there are constant news about the rotation of reserve cotton in the industry. The mainstream statement is that the rotation will start in March 2016. At the China Cotton Industry Elite Forum held recently, business representatives generally believed that June to August 2016 would be suitable. Turn out. According to past rotation experience, the time is generally chosen between July and August. At this time, for cotton farmers, the new cotton has basically been delivered and sold; for cotton companies, the sales of new cotton have entered the late stage, and the amount of remaining lint cotton is limited, which has a small impact on the entire market; for textile companies, it is When the lint resources in the market are in short supply, the options available are limited.
​The price difference between different grades of cotton widens
The cotton market is still oversupplied, and cotton prices will still tend to be weak. As for cotton prices in 2016, the industry is not only looking down on it, but also is affected by more prominent structural contradictions. The industry generally believes that the gap between the purchase, sale and price of high-grade and low-grade cotton will further widen.
Especially in September 2015, Xinjiang encountered two large-scale cooling and precipitation weather, which had a greater impact on cotton quality. The cotton public inspection data was much different from previous years, causing the gap in my country’s high-grade cotton to expand. Therefore, many cotton textile companies are worried that the shortage of high-grade cotton will become more serious in 2015/2016, which will also further widen the price difference between domestic high-grade and low-grade cotton.
Yangtze Futures cotton analysts said that in terms of production demand this year alone, the total domestic cotton demand is about 7 million tons. The 5.3 million tons of new cotton supply plus the 894,000 tons of import quotas still leave a gap of about 900,000 tons. . More than 20 days of high-temperature weather from July to August last year affected the quality of new cotton, with various problems such as short fibers and high horse value. As a result, less than 40% of the high-grade cotton produced by enterprises was sufficient, and high-quality cotton was relatively in short supply. Therefore, this person believes that it is not ruled out that after the recent concentration period of new cotton on the market, with the reduction of cotton sources, before the sale of state reserve cotton, the market price of high-grade cotton will have some room to rebound, but it will still not go higher.
my country’s various cotton policies show that the country’s willingness to destock cotton continues to increase. In other words, the year-by-year reduction in cotton planting area has led to a year-on-year decline in supply, and my country’s cotton destocking model has begun. Cotton prices will get lower and lower, but cotton farmers’ planting and harvesting costs are high. At the same time, the contradiction between output, quality, and efficiency is further highlighted. There is an oversupply of low-grade cotton and a relative shortage of high-grade cotton. Although the country has implemented the direct subsidy program in Xinjiang and the fixed subsidy policy in the mainland, it is difficult to boost the enthusiasm of cotton farmers in the short term. It is expected that the planting area of ​​various cotton regions will still decline to varying degrees in 2016.
In 2015/2016, although the supply and demand relationship in the domestic cotton market has improved, cotton as a whole has entered a destocking cycle, and it will take time for cotton demand to improve. Regarding cotton prices in 2016, Wu Faxin, chairman of Shanghai Yarnbao Co., Ltd., believes that “domestic cotton prices cannot rise, and foreign cotton prices cannot fall.” He said that many domestic bosses have set up factories overseas. The most common phenomenon is that due to the inability to purchase good cotton domestically, Chinese cotton spinning mills and cotton yarn traders go abroad to buy Australian cotton or American cotton, transport it to Ho Chi Minh City in Vietnam, and then spin the foreign cotton into yarn from Ho Chi Minh City. Ship it to Shanghai, Qingdao or other countries in my country for weaving. In this way, problems with restrictions such as quotas, labor and tariffs can be resolved. It can be expected that these Chinese companies with factories overseas will become the main force in foreign cotton procurement. Therefore, the price of overseas cotton will have limited room to explore due to the support of demand.