Will the cotton price bottom out in 2016?

Opening bar: At the end of the year and the year of the end of the year, the cotton textile industry began to enthusiastically discuss the impact of the new year on the industry's operating factors. How the cotton price changes, when the State Reserve Cotton turns, and what impact Xinjiang's cotton textile production has on spinning companies in the Mainland has become the topic of greatest concern to the industry chain. In order to understand the development direction of the new year's cotton textile industry in more detail, this edition has launched a series of reports on “2016 Concerned Factors Affecting the Operation of the Cotton Textile Industry” from the current period, from cotton prices, domestic cotton market inventories and Xinjiang cotton and cotton yarn production , analyze the development environment of the industry in 2016.

After the reform of the cotton policy, at the beginning of 2015, the industry's confidence in the operation of the industry has increased significantly. It is believed that although there will be a relatively difficult transition period, the industry will surely get better and better. Today, just in 2015, the reporter found in the interview that the transitional period was clearly worse than the company expected. Companies generally stated 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 downward pressure on the economic environment and the insufficiency of downstream demand, the downward trend in cotton prices has led to serious losses in orders for cotton textile companies, and even the phenomenon of “single bills and losing one bill” has caused companies to agonize.

In 2016, the cotton textile industry is still affected by many factors such as quality and price. Under the circumstances that cotton production is cut, policies are optimized, and the market price mechanism is more mature, will China's cotton prices bottom out in 2016? Is there a turning point in the operation of the cotton textile industry? In this regard, related parties said that China's cotton supply is significantly greater than the cotton consumption, in this case, the price of cotton wants to bottom out, really difficult.

Cotton demand has not improved

All along, China's cotton price is the most frustrating part of the cotton textile industry chain. In the era of cotton storage, the price of cotton is determined by the country, but relatively speaking, the price is stable. After the implementation of the cotton policy reform, cotton prices have gradually become market-oriented, and are gradually in line with the international market, and cotton prices are in a downward trend of volatility. The instability of cotton prices and the still existing cotton price gap between domestic and foreign countries have led to a significant reduction in China’s cotton consumption.

During the "12th Five-Year Plan" period, China's cotton fiber consumption has been declining, from 12 million tons per year in previous years to 7 million tons. According to relevant agencies, China'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, believes that: “Actually, China is not using cotton in large quantities, but is using large amounts of cotton in other people. Although China’s cotton consumption is declining, if the amount of imported yarn is used, China’s cotton consumption is calculated. The drop is not obvious."

According to the latest forecast of the International Cotton Advisory Committee in January, in 2015/2016, affected by the low price of international cotton prices, the production of cotton in China and the southern hemisphere will be reduced. It is expected that the global cotton production will be reduced to 24.55 million tons, which is 5.9% less than the same period of last year; the consumption is 24.67 million. t, a year-on-year increase of 1.1%; as the consumption is greater than the output, global cotton ending stocks were reduced to 21.13 million tons. In other words, from a global perspective, the supply and demand of the cotton market is basically balanced. At present, great changes have taken place in the international cotton market. After five years of growth in global cotton stocks, there has been a turnaround, and only China is still in a situation where supply exceeds demand.

How can we improve China's cotton fiber consumption, Li Nan pointed out that the solution to China's cotton problem is still to expand consumption. At present, China's cotton consumption is not small, but many of the many domestic companies use foreign cotton. Only the use of domestic cotton is increased. Reserve cotton has a way out.

Large supply of market resources

Another important factor that exerts tremendous pressure on China's cotton prices is China’s huge cotton stocks. The supply of cotton in our country is seriously greater than the consumption of cotton. Under such circumstances, it is difficult for the cotton price to bottom out.

In 2014, the total supply of cotton in China was about 20.8 million tons, and the consumption was about 7.2 million tons. The supply was obviously oversupply, and the inventory amounted to 14.8 million tons. In 2015, the decline in output caused the supply to drop to 2010 tons, the demand dropped slightly to 7.13 million tons, and the inventory dropped slightly to 14.17 million tons, but it was still at a high level. Among them, the supply includes the state reserve cotton, new cotton, imported cotton, the company's carry forward inventory. As of the end of 2015, the State Reserve's cotton stock is still around 12 million tons. With regard to China's current cotton stocks, relevant sources said that with the present level of cotton consumption in China, even if cotton farmers do not grow cotton and textile companies do not import cotton, the 12 million tons of state reserve cotton will take at least two years to be consumed. It can be said that the impact of such a huge inventory on the price of cotton can only be a single word.

According to data released by the National Bureau of Statistics, in 2015, the cotton sown area in China was 3799.0 thousand hectares, which was 423.4 thousand hectares less than 2014, a decrease of 10.0%. The country’s total cotton output was 5.605 million tons, a decrease of 574,000 tons from 2014, and a 9.3% reduction in output. Earlier, the relevant person in charge of the National Development and Reform Commission stated that in 2016, it continued to strictly control the import of cotton, and the import quota within the tariff was still limited to the level of the agreed bottom line of the WTO of 894,000 tons. In other words, in 2015/2016, China's cotton textile enterprises can use at least 18 million tons of cotton, which is about three times the annual consumption of cotton in China.

Therefore, a number of heads of textile companies stated that in 2016, the price of China's State Reserve Cotton was likely to fall again, and it would even lead to a new round of decline in China's cotton price. The reserve cotton turn-out time in 2016 has also been the focus of attention in the industry. At present, there is continuous news about the reserve cotton turnout in the industry. The mainstream argument is that it will be launched in March 2016. At the China Cotton Elite Forum held recently, corporate representatives generally believe that it is suitable for June 2016 to August 2016. Turn out. According to past experience, the time is generally chosen from July to August. At this time, for the cotton farmers, the new cotton is basically sold out; for the cotton enterprises, the new cotton sales work enters the latter stage, and the quantity of the remaining lint is limited, which has little impact on the market. For the textile enterprises, it is precisely When market lint resources are scarce, there is limited room for choice.

Different levels of cotton spread widened

The cotton market is still oversupply, and the cotton prices will still tend to be weak. For the 2016 cotton price, except for the downside, the industry is more affected by the structural contradictions. The industry generally believes that the gap between cotton purchases and sales, such as high and low prices, will further widen.

In particular, in September 2015, Xinjiang experienced two large-scale cooling and precipitation events, which had a greater impact on the quality of cotton. The cotton public inspection data had more differences than in previous years, resulting in an increase in gaps in China's high-grade cotton. Therefore, many cotton textile companies are concerned that the shortage of high-grade cotton in 2015/2016 will be even more severe, which will further widen the spread of domestic high- and low-grade cotton.

According to analysts from the Yangtze River, cotton analysts said that on the basis of this year's production and demand alone, the total domestic cotton demand is about 7 million tons, and the new cotton supply of 5.3 million tons plus the import quota of 894,000 tons still has a deficit of about 900,000. Ton. The high-temperature weather of more than 20 days from July to August last year affected the quality of new cotton, resulting in various problems such as short fiber, high horse value, and so on, leading to less than 40% of the high-grade cotton produced by the company, and the relative shortage of high-quality cotton. Therefore, the source believes that it is not ruled out that after the concentration period of new cotton is listed in the near future, with the reduction of cotton sources, there will be room for rebound in the market price of high-grade cotton before the sale of State Reserve Cotton, but it will still not rise.

China's various cotton policies show that the country’s willingness to destock cotton is increasing. In other words, the year-on-year reduction in cotton acreage has led to a year-on-year decline in supplies, and China’s cotton destocking model has begun. The price of cotton will become lower and lower, while the cost of planting and harvesting of cotton farmers will be very high. At the same time, the contradiction of unbalanced production, quality, and benefits will be further highlighted. The oversupply of low-grade cotton and the relative shortage of high-grade cotton will increase. Although the country has already implemented the Xinjiang Direct Subsidy Scheme and the Mainland Fixed Subsidy Policy, the planting enthusiasm of cotton farmers is difficult to boost in the short term. It is expected that the planted area of ​​cotton in 2016 will still fall to varying degrees.

In 2015/2016, although the supply and demand relationship in the domestic cotton market has improved, the overall cotton entering the destocking cycle will require time for cotton demand to improve. For the price of cotton in 2016, Wu Faxin, chairman of Shanghai Yarn Co., Ltd., believes that “the price of domestic cotton cannot rise, and the price of foreign cotton cannot fall.” He said that many domestic bosses are in the peripheral factory. The most common phenomenon is that due to the lack of good cotton procurement in China, Chinese cotton mills and cotton yarn traders go abroad to buy Australian cotton or cotton, transport it to Ho Chi Minh City in Vietnam, spin the outer cotton into yarn, and then from Ho Chi Minh City. Ship to our country Shanghai, Qingdao or other countries to weaving cloth. In this way, problems that are limited by quotas, labor, and tariffs can be solved. It can be expected that these Chinese companies in the peripheral plant will become the main force for foreign cotton procurement. Therefore, the price of overseas cotton will be supported by the demand and the space for exploration will be limited.