Yesterday (November 9), China National Cotton Material Corporation (hereinafter referred to as: CNNCMC) wrote an article on the SASAC website stating that recently, there has been no improvement in downstream consumption. Enterprises have seen increased inventory of yarn and fabric, tightening funds, and are under great pressure to reduce prices and promote sales. The price of cotton yarn continues to fall; affected by the decline in upstream PTA prices, the price of polyester staple fiber has significantly decreased. The开机rate of textile enterprises has declined, material procurement is weak, and domestic cotton prices have slightly fallen.
The rollercoaster of cotton prices
The International Cotton Advisory Committee (ICAC)’s November global production and demand forecast estimates that the global cotton consumption for the 2011/12 season will be 24.6 million tons, a reduction of 120,000 tons from last month. For this season, global production exceeds consumption by 2.3 million tons, with the stock-to-use ratio (excluding China) expected to rise to 55%. Recently, the US cotton export report showed that for the week of October 21-27, 2011, the net signing volume of US upland cotton exports for the 2011/12 season was 20,900 tons, a decrease of 66,400 tons from the previous week.
The decline in cotton prices did not bring much joy to Mr. He, who works in the cotton textile industry.
Xiong Kuan said that according to his understanding, since entering October, the number of textile enterprises suffering losses and halting production has gradually increased.
"At present, the production and sales of our country's textile industry show a sluggish trend. Sales of yarn and fabric are weak, finished goods inventory is rising, and the phenomenon of enterprises halting or limiting production is increasing. It is difficult for cotton procurement volumes to expand," CNNCMC wrote in the article. In addition, recently, the trading volume of domestic purchases has set new highs, and the enthusiasm of cotton enterprises to participate in storage has significantly increased. This is also a reflection of weak downstream cotton demand. Due to difficulties in domestic consumption and cotton demand recovery, it is expected that the spot price of cotton may further weaken.
Xiong Kuan stated that when cotton prices were high, chemical fibers temporarily became substitutes for cotton. Now that cotton prices are low and current supply is abundant, textile processing enterprises have a strong desire to increase their cotton blending ratio, thereby reducing the substitution effect of chemical fibers.
CNNCMC analyst Zhu Qinghua indicated that cotton farmers have high psychological expectations for this year's cotton prices. Many cotton farmers have expressed unwillingness to sell below 4.5 yuan per catty, showing significant reluctance to sell and mostly holding an observational stance.
"Due to tight funds and the expectation that near-term cotton prices will not rise significantly, we are relatively cautious when purchasing cotton, basically buying only what we need," Mr. He said, adding that their company has not stockpiled cotton due to its low price.
"The price of cotton yarn has fallen too sharply, now approaching the cost line," Mr. He said. If the price of cotton yarn continues to fall, their company can only face the dilemma of loss.
On November 9, CNNCMC wrote that on November 4, the quoted price of 32-count pure cotton carded yarn was 26,870 yuan per ton, down 200 yuan per ton from last week, a drop of 0.7%; the quoted price of polyester staple fiber was 11,950 yuan per ton, down 550 yuan per ton from last week, a drop of 4.4%. The average acquisition price of grade 3 local seed cotton was 4.11 yuan per catty (equivalent to 18,210 yuan per ton for lint cotton), down 0.05 yuan per catty from last week, a drop of 1.2%; the average acquisition price of grade 3 seed cotton in Xinjiang was 4.14 yuan per catty (equivalent to 18,267 yuan per ton for lint cotton), down 0.06 yuan per catty from last week, a drop of 1.4%. The national cotton price B index, representing the average selling price of standard grade inland lint cotton, was 19,316 yuan per ton, down 129 yuan per ton from last week, a drop of 0.7%; the average selling price of standard grade Xinjiang lint cotton was 19,637 yuan per ton, down 116 yuan per ton from last week, a drop of 0.6%. The settlement price of Zhengzhou cotton futures for November contracts was 19,345 yuan per ton, down 135 yuan per ton from last week, a drop of 0.7%; the average price of November contracts in the electronic matching transactions of the National Cotton Trading Market was 18,883 yuan per ton, down 204 yuan per ton from last week, a drop of 1.1%.
CNNCMC stated that at the recent G20 summit, leaders failed to reach agreement on using the International Monetary Fund (IMF) to resolve the European debt crisis. The Eurozone debt crisis remains unresolved, making it difficult to restore market confidence. Additionally, the global oversupply of cotton continues to put downward pressure on international cotton prices. Cotton prices are unlikely to escape a weak trend, and it is expected that they will remain weak and volatile in the near future.
Mr. He indicated that currently, enterprises spinning pure cotton are in a relatively difficult situation, while those spinning polyester-cotton are in an even tougher position. Some local enterprises have started to limit production to reduce losses.
Mr. He added that when cotton prices were high, some textile enterprises reduced the production of pure cotton yarn to alleviate financial pressure and increased the production of polyester-cotton and chemical fibers. Currently, polyester-cotton sales have sharply decreased, and some enterprises have serious inventory issues. "These enterprises are having a harder time than us, and some textile factories have begun to halt production to reduce losses."
From January this year until now, domestic cotton prices have shown an inverted 'V' shape. The China Cotton Price Index rose from 27,516 yuan per ton on January 4 to 31,241 yuan per ton on March 8. Afterwards, the situation drastically changed, with cotton prices plummeting. On April 2, the price was 29,852 yuan per ton, and on June 14, it fell to 24,551 yuan per ton. Yesterday (November 9), the China Cotton Price Index (CCIndex328) had plummeted to 19,271 yuan per ton.
Cotton yarn sees both quantity and price declines
"In the beginning of the year, cotton was not only very expensive but also in short supply. At that time, our company even sent dedicated personnel to Xinjiang to purchase cotton," Mr. He revealed. Currently, cotton traders are rushing to textile mills to promote cotton sales.
"Last year, cotton prices surged, benefiting cotton farmers, leading to a substantial increase in planting area and strong planting intentions. However, despite a bountiful harvest, cotton farmers are reluctant to sell, and cotton enterprises are not keen on procurement either, lowering prices. The cotton trading market remains stable," Xiong Kuan, an analyst at Orient Agribusiness Consultant, told the Daily Economic News yesterday. Entering October, with the large-scale listing of seed cotton, seed cotton prices continued to decline, and the continued sluggishness of Western economies kept the demand of textile enterprises low. Lint cotton prices face significant upward pressure.
In Mr. He's view, the changes in cotton prices this year have been unpredictable. Most enterprises that hoarded cotton earlier suffered heavy losses, and many enterprises are afraid of speculating in cotton.
Normally, a bountiful cotton harvest would be good news for cotton farmers, cotton enterprises, and textile enterprises alike. However, in the cotton industry chain, a strong sense of observation prevails.
"Compared to last year, although cotton prices have indeed fallen significantly, the price of cotton yarn has dropped even more sharply, with the decline far exceeding that of cotton," said Mr. He, the supply and marketing minister of a large cotton textile enterprise in Suining, Sichuan Province, yesterday. At the beginning of the year, 40-count cotton yarn sold for as high as 48,000 yuan per ton, but now it sells for only 28,000 yuan per ton. Moreover, the sales volume of cotton yarn has also dropped significantly compared to the start of the year.
Additionally, public data shows that this year, the national cotton harvest has been bountiful, with the total cotton output in the country expected to reach 7.38 million tons, an increase of 10.9% over the previous year.