Intensified Speculation In Cotton Market Will Trigger Policy Adjustment And Upgrading

First, the domestic panic buying trend continues, seed cotton purchase progress is accelerating and prices are soaring, cotton market fundamentals remain tight.

Due to the large reduction in cotton production and the poor quality of seed cotton this year, the supply and demand of cotton spot market is tight, especially the high-grade cotton resources in the mainland are relatively scarce.

Therefore, many cotton gin companies in the mainland have been shopping for cotton in Xinjiang, and Zhejiang Wenzhou's speculative capital has been snapped up in Xinjiang, resulting in the price of seed cotton in Xinjiang as high as 12.6 yuan / kg.

Mainland Hunan Yueyang 5 grade seed cotton, lint 35%, purchase price at 5.5 yuan / Jin, cost 24000 yuan / ton.

In Henan, Shandong, Anhui and Jiangsu, the purchase price of grade 5 cotton seed with 38% lint and 18% moisture content is also over 11.5 yuan / kg, and the cost of lint is 28000 yuan / ton.

Cotton producing areas in China, from the mainland to Xinjiang, on the one hand, cotton merchants rush to buy resources, on the other hand, cotton farmers are reluctant to sell, while processing enterprises do not dare to bulk up processing and hoarding.

Although spot prices are rising all the way, as of November 2nd, China's cotton price index (CC Index 328) was as high as 27405 yuan / ton, up 339 yuan / ton, 527 level 25830 yuan / ton, up 581 yuan / ton, 229 28016 yuan / ton, up 362 yuan / ton, but the textile factory purchase intention is not strong, basically with the purchase.

Two, the international market has limited volume of US cotton exports, and India's export quota is pushing up the international cotton price.

Due to the recent precipitation in India and slowing down the speed of new flower listing, the India government hopes to first guarantee domestic cotton demand and then consider cotton exports.

Despite the increase in cotton production in India this year, India is not willing to export large quantities to other countries in order to maintain adequate domestic supply and steady fluctuations in cotton prices, so as to maintain the profits of textile enterprises rather than share the profits from the sharp rise in international cotton prices through a large number of exports.

India's production can not provide more supply for global cotton consumption, while the United States has nearly 3 million tons of cotton for export this year, and now it has signed nearly 2 million tons, and China has signed nearly 1 million tons.

The remaining 1 million tons of cotton have limited effect on stabilizing supply and demand in a relatively tight global market. The fund is buying heavily on China's import demand and strong demand in the global cotton market, pushing international cotton prices further higher.

The CIF price of imported cotton continued to rise sharply with the international cotton price. As of October 29th, the import tariff of FCIndex M grade 1% was 24994 yuan / ton, and the discount slip quasi tax was 25393 yuan / ton, up 4438 yuan / ton, 4394 yuan / ton respectively, or 21.6% or 20.9% respectively.

Judging from the trend of cotton price difference between inside and outside, the difference between domestic and 1% tariff import cotton price is close to 2000 yuan / ton, which exceeds the range of 1000 to 1500 of the normal range, so that once a large number of quotas are allocated, it will enhance the regulation and control ability of quotas. However, generally speaking, foreign import resources are also limited. Even if there is a large number of quotas, it is difficult to reverse the overall situation of supply and demand of cotton.

Three, the domestic textile industry has achieved good results, but the cotton prices which are rising too fast in the second half of the year will restrict the sustainable development of the textile industry.

According to the statistics of National Bureau of statistics, China's textile industry has achieved good results in the first three quarters.

The total profit in the first three quarters increased by 51.9% compared with the same period last year, which increased by 46.5% in September.

The textile and garment industry prosperity index and related industry data show that the boom of the textile industry continued to improve in the three quarter, and the growth rate of exports, employees, profits and fixed assets investment increased to varying degrees.

In the three quarter of 2010, the textile industry's prosperity index was 101 points, up 1.1 points from the previous quarter, showing signs of partial heat, while the garment manufacturing prosperity index was 99.1 points, unchanged from the previous quarter and showing a certain downward trend.

From the data, the textile industry is better than the clothing industry.

However, since September, cotton prices have risen by more than 50%, which is undoubtedly a great pressure on textile enterprises. The increase of raw materials exceeds the increase of products, and the profit margins of cotton yarns have been greatly reduced. In the light of the average cost of 28000 yuan / ton of lint cotton, most textile enterprises are facing losses.

If cotton prices are stable for 28000 to 30000 yuan per ton for a long time, they will greatly affect the sustainable development of the textile industry.

Four, post market regulation may escalate, and policy risks need to be prevented.

Although the bull market is high, the potential risk is gradually showing the tip of the iceberg.

High cotton prices will cause textile enterprises to reduce cotton distribution ratio and reduce cotton demand.

The intensified speculation behind the phased imbalance between supply and demand will trigger policy adjustment and upgrading.

In order to ensure supply, Premier Wen Jiabao recently chaired a State Council executive meeting, especially referring to "do a good job in cotton reserves and Xinjiang cotton pport". This shows that the state's attention to the current cotton market has been raised, and later regulation will be intensified.

In addition, we also believe that the sharp rise in cotton prices has been the driving force of the US trade game. With the completion of the cotton contract signed by the United States, the fund may withdraw at any time, allowing China to reap the bitter fruit of buying China's US soybean in 2004.

To sum up, we believe that cotton prices will continue to show a strong upward trend in the short term. However, for the purpose of preventing risks, we suggest that we should raise more and more pounds.