"Last year, the price of cotton surged, benefiting cotton farmers and leading to a significant increase in planting areas and strong planting intentions. However, due to a bountiful cotton harvest, farmers have been reluctant to sell, while cotton enterprises have not been keen on purchasing, opting instead to suppress prices. As a result, the cotton trading market has remained stable," said Xiong Kuan, an analyst at Orient Agribusiness Consultant, in an interview with The Economic Information Daily yesterday. He added that as we enter October, with the large-scale listing of seed cotton, the price of seed cotton continues to fall. Moreover, the continued sluggishness of the European and American economies keeps the demand from textile enterprises low, putting significant upward pressure on the price of raw cotton.
"Due to tight capital and expectations that near-term cotton prices will not rise significantly, we are being cautious in our cotton procurement, basically buying only what we need," Mr. He stated, indicating that his company has not stockpiled cotton due to its current low price.
Zhu Qinghua, a researcher at China Investment Consulting, noted that cotton farmers have high psychological expectations for this year's cotton prices, with many farmers stating they will not sell below 4.5 yuan per jin, reflecting a strong reluctance to sell. Most are adopting a wait-and-see attitude.
The fluctuations in cotton prices resemble a roller coaster ride. "Compared to last year, the price of cotton has indeed dropped significantly, but the price of cotton yarn has fallen even more sharply, with the decline far exceeding that of cotton," Mr. He, the supply and marketing minister of a large cotton textile enterprise in Suining, Sichuan Province, stated yesterday. At the beginning of this year, 40-count cotton yarn was selling for as high as 48,000 yuan per ton, but now it is only 28,000 yuan per ton. Additionally, sales of cotton yarn have also dropped significantly compared to the start of the year.
"Currently, China’s textile industry is experiencing sluggish production and sales, with weak sales of yarn and cloth, rising finished goods inventory, and an increase in companies reducing or halting production. Cotton procurement volumes are unlikely to increase," according to an article by China National Cotton Reserve Corporation. Furthermore, recent reserve purchase volumes have set new records, with cotton enterprises showing significantly increased enthusiasm for reserve purchases, reflecting weak downstream cotton demand. Due to difficulties in quickly reviving domestic consumption and cotton demand, it is expected that spot cotton prices may weaken further.
Cotton price declines have not brought much joy to Mr. He, who works in the cotton textile industry. "At the beginning of the year, cotton was not only very expensive but also in short supply, so our company sent specialists to Xinjiang to procure cotton," he recalled. Now, cotton traders are competing to sell cotton directly to textile mills.
China National Cotton Reserve Corporation noted that during the recent G20 summit, leaders were unable to reach agreement on resolving the Eurozone debt crisis through the International Monetary Fund (IMF). With unresolved issues surrounding the Eurozone debt crisis, market confidence remains difficult to restore. In addition, global oversupply continues to exert downward pressure on international cotton prices, making it hard for cotton prices to escape their weakened state. In the near term, cotton prices are expected to remain in a weak fluctuation pattern.
According to the November forecast by the International Cotton Advisory Committee (ICAC), global cotton consumption for the 2011/12 season is estimated at 24.6 million tons, down 120,000 tons from last month. This season, global production exceeds consumption by 2.3 million tons, with the stock-to-use ratio (excluding China) expected to rise to 55%. Recent U.S. cotton export reports show that net signing volume of U.S. upland cotton for the week ending October 27, 2011, was 20,900 tons, down 66,400 tons from the previous week.
In principle, a cotton bumper harvest should be good news for cotton farmers, cotton enterprises, and textile enterprises alike. However, within the cotton industry chain, a strong sense of caution prevails.
"The price of cotton yarn has fallen too sharply and is now approaching cost lines," Mr. He expressed concern, noting that if cotton yarn prices continue to fall, his company will face losses.
On November 9, China National Cotton Reserve Corporation published an article stating that on November 4, the quoted price for 32-count pure cotton carded yarn was 26,870 yuan per ton, down 200 yuan per ton from the previous week, a drop of 0.7%. The quoted price for polyester staple fiber was 11,950 yuan per ton, down 550 yuan per ton from the previous week, a drop of 4.4%. The average acquisition price for grade 3 seed cotton in inland areas was 4.11 yuan per jin (equivalent to 18,210 yuan per ton for raw cotton), down 0.05 yuan per jin from the previous week, a drop of 1.2%. The average acquisition price for grade 3 seed cotton in Xinjiang was 4.14 yuan per jin (equivalent to 18,267 yuan per ton for raw cotton), down 0.06 yuan per jin from the previous week, a drop of 1.4%. The national cotton price B index, representing the average sales price of standard-grade raw cotton in mainland areas, was 19,316 yuan per ton, down 129 yuan per ton from the previous week, a drop of 0.7%. The average sales price for standard-grade raw cotton in Xinjiang was 19,637 yuan per ton, down 116 yuan per ton from the previous week, a drop of 0.6%. The settlement price of Zhengzhou cotton futures for the November contract was 19,345 yuan per ton, down 135 yuan per ton from the previous week, a drop of 0.7%. The average price of electronic transactions for the November contract on the National Cotton Trading Market was 18,883 yuan per ton, down 204 yuan per ton from the previous week, a drop of 1.1%.
Moreover, public data shows that this year's nationwide cotton harvest has been bountiful, with the total national cotton output expected to reach 7.38 million tons, an increase of 10.9% over the previous year.
Xiong Kuan pointed out that when cotton prices were high, synthetic fibers temporarily became substitutes for cotton. Now, with cotton prices low and supply abundant, textile processors have stronger intentions to increase the proportion of cotton used, reducing the substitution effect of synthetic fibers.
Mr. He mentioned that currently, companies spinning pure cotton are facing difficulties, while those spinning polyester-cotton blends are in even worse shape, with some local companies starting to limit production to reduce losses.
Yesterday (November 9), China National Cotton Reserve Corporation wrote on the SASAC website that recently, there has been no improvement in downstream consumption, with increases in corporate yarn and fabric inventories, tightening funds, and greater pressure for price reductions. Cotton yarn prices have continued to fall; affected by falling upstream PTA prices, polyester staple fiber prices have significantly declined. Textile companies' machine operating rates have decreased, and material procurement has been weak, resulting in a slight decline in domestic cotton prices.
From January this year until now, domestic cotton prices have followed an inverted 'V' pattern. The China Cotton Price Index started at 27,516 yuan per ton on January 4 and rose to 31,241 yuan per ton on March 8. Afterwards, the situation changed dramatically, with cotton prices plummeting to 29,852 yuan per ton on April 2 and further dropping to 24,551 yuan per ton on June 14. Yesterday (November 9), the China Cotton Price Index (CCIndex328) had plummeted to 19,271 yuan per ton.
Mr. He indicated that when cotton prices were high, some textile companies reduced the amount of pure cotton yarn produced to ease capital pressure, increasing the production of polyester-cotton and synthetic fibers. Currently, polyester-cotton sales have sharply declined, with some companies experiencing serious inventory issues. "These companies are having a harder time than us, with some textile factories beginning to halt production to reduce losses."
Xiong Kuan mentioned that since entering October, the number of textile companies experiencing losses and halting production has gradually increased.
With the sharp drop in cotton yarn prices and volumes, the uncertainties in the cotton market this year have left most companies that stockpiled cotton earlier suffering heavy losses. Many companies have become wary of speculating on cotton prices.