"Early in the year, cotton was not only very expensive but also in short supply, so our company sent specialists to Xinjiang to purchase cotton." Mr. He indicated that currently, cotton traders are competing to come to textile mills to market their cotton.
On November 9, China National Cotton Reserve Corporation wrote an article stating that on November 4, the price of 32-count pure cotton carded yarn was quoted at 26,870 yuan/ton, down 200 yuan/ton from last week with a decrease of 0.7%; polyester staple fiber was quoted at 11,950 yuan/ton, down 550 yuan/ton from last week with a decrease of 4.4%. The average acquisition price for Grade 3 seed cotton in mainland areas was 4.11 yuan/jin (equivalent to 18,210 yuan/ton for lint cotton), down 0.05 yuan/jin from last week with a decrease of 1.2%; the average acquisition price for Grade 3 seed cotton in Xinjiang was 4.14 yuan/jin (equivalent to 18,267 yuan/ton for lint cotton), down 0.06 yuan/jin from last week with a decrease of 1.4%. The national cotton price B index, which represents the average selling price of standard grade lint cotton in key domestic areas, was 19,316 yuan/ton, down 129 yuan/ton from last week with a decrease of 0.7%; the average selling price for standard grade lint cotton in Xinjiang was 19,637 yuan/ton, down 116 yuan/ton from last week with a decrease of 0.6%. The settlement price for Zhengzhou cotton futures November contract was 19,345 yuan/ton, down 135 yuan/ton from last week with a decrease of 0.7%; the average price for the November contract of electronic trading on the National Cotton Trading Market was 18,883 yuan/ton, down 204 yuan/ton from last week with a decrease of 1.1%.
The quantity and price of cotton yarn fell simultaneously.
The International Cotton Advisory Committee (ICAC) forecast in its November global production and consumption outlook estimated global cotton consumption for the 2011/12 season at 24.6 million tons, down 120,000 tons from last month. For this season, global production exceeds consumption by 2.3 million tons, and the inventory-to-consumption ratio (excluding China) is expected to rise to 55%. Recent U.S. cotton export reports showed that for the week of October 21-27, 2011, the net contracted volume for U.S. upland cotton exports for the 2011/12 season was 20,900 tons, down 66,400 tons from last week.
Mr. He revealed that during periods when cotton prices were high, some textile enterprises reduced the amount of pure cotton yarn spun to increase the amount of polyester cotton and synthetic fiber spun in order to alleviate financial pressure. Now, sales of polyester cotton have sharply decreased, and some companies face tight inventories. "Currently, these companies are having a harder time than us; some textile factories have begun to shut down operations to reduce losses."
From January this year until now, domestic cotton prices have shown an inverted 'V' shaped trend. The China Cotton Price Index rose from 27,516 yuan/ton on January 4 to 31,241 yuan/ton on March 8. Afterwards, there was a dramatic change, and cotton prices plummeted, reaching 29,852 yuan/ton on April 2 and falling further to 24,551 yuan/ton on June 14. Yesterday (November 9), the China Cotton Price Index (CCIndex328) had dropped dramatically to 19,271 yuan/ton.
"At present, the textile industry in our country is experiencing sluggish production and sales. Sales of yarn and cloth are weak, finished product inventories are rising, and the number of enterprises shutting down or limiting production is increasing," stated China National Cotton Reserve Corporation. Additionally, recent domestic reserve purchase volumes have continuously set new highs, indicating a significant increase in enthusiasm among cotton enterprises to deliver reserves, reflecting weak downstream cotton demand. Due to difficulties in quickly reviving domestic consumption and cotton demand, it is expected that spot cotton prices may continue to weaken.
The decline in cotton prices has not brought much joy to Mr. He, who is involved in the cotton textile industry.
Cotton Price Rollercoaster
"Due to tight capital and expectations that near-term cotton prices will not rise significantly, we have been relatively cautious in purchasing cotton, basically buying as needed," Mr. He said, noting that his company did not stockpile cotton due to low cotton prices.
Xiong Kuan mentioned that since entering October, the number of loss-making and shut-down textile enterprises has gradually increased.
In theory, a cotton harvest should be good news for cotton farmers, cotton enterprises, and textile enterprises alike. However, within the cotton industry chain, a strong atmosphere of观望is prevailing.
"The price of cotton yarn has fallen too sharply and is now approaching the cost line," Mr. He said. If cotton yarn prices continue to fall, his company would face a loss-making situation.
Researcher Zhu Qinghua of Zhongtou Consulting pointed out that cotton farmers have high psychological expectations for this year's cotton prices. Many farmers expressed unwillingness to sell below 4.5 yuan/jin, showing severe reluctance to sell and mostly adopting a wait-and-see attitude.
China National Cotton Reserve Corporation noted 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 for market confidence to recover. In addition, the global oversupply of cotton continues to exert downward pressure on international cotton prices. It is expected that cotton prices will remain weak in the near term and fluctuate slightly.
Mr. He stated that currently, enterprises spinning pure cotton are facing difficulties, while those spinning polyester cotton are in an even tougher situation. Some local enterprises have started to limit production to reduce losses.
Yesterday (November 9), China National Cotton Reserve Management Corporation General wrote an article on the SASAC website stating that recently, no improvement has been seen in downstream consumption. Enterprise yarn and cloth inventories have increased, funds are tightening, enterprises are under pressure to reduce prices to promote sales, and cotton yarn prices continue to fall. Affected by the upstream PTA price drop, polyester short fiber prices have significantly declined. Textile enterprise machine operation rates have dropped, raw material procurement is weak, and domestic cotton prices have slightly fallen.
"Last year, cotton prices soared, benefiting cotton farmers, leading to a substantial increase in planting area and strong planting intentions. However, despite the bumper cotton harvest, farmers are reluctant to sell, and cotton enterprises are not keen on purchasing, keeping prices low. The cotton trading market remains stable," Xiong Kuan told The Daily Economic News yesterday. He believes that entering October, with the large-scale listing of seed cotton, seed cotton prices have continued to decline. Furthermore, the persistent economic weakness in Europe and America has kept textile enterprise demand low, placing significant upward pressure on lint cotton prices.
"Compared to last year, cotton prices have indeed fallen significantly, but cotton yarn prices have fallen even more sharply, with declines far exceeding those of cotton," Mr. He, the supply and marketing minister of a large cotton textile enterprise in Suining, Sichuan Province, said yesterday. At the beginning of the year, 40-count cotton yarn sold for as high as 48,000 yuan/ton, but now it sells for only 28,000 yuan/ton. Moreover, cotton yarn sales have also significantly dropped compared to the start of the year.
In Mr. He's view, the changes in cotton prices this year have been unpredictable, and most enterprises that hoarded cotton earlier suffered heavy losses. Many enterprises are now afraid to speculate on cotton.
Xiong Kuan noted that when cotton prices were high, synthetic fibers temporarily became substitutes for cotton. Currently, with cotton prices low and supply abundant, textile processors have a strong desire to increase the proportion of cotton used, reducing the substitution effect of synthetic fibers.
Additionally, public data shows that this year, the nation's cotton crop has achieved a bountiful harvest, with total national cotton production expected to reach 7.38 million tons, an increase of 10.9% over the previous year.