Lu Tai A: Cotton Reserves Are Only Enough To Maintain &Nbsp For Two Months; Products Will Continue To Raise Prices.

In September 25th, China's cotton price index broke through the 20 thousand yuan / ton mark. After only half a month, cotton prices broke through 30 thousand yuan / ton in a thunderbolt. In just a month and a half, domestic cotton prices rose by 50%. In November, cotton prices almost reached the unbearable weight. So the NDRC issued urgent notices to investigate and punish the spread of price information, malicious hoarding, and price hike.

At this point, the US Department of Agriculture reported adding fuel to China's cotton.

In November 9th, the US Department of agriculture launched the latest update on the supply and demand of global agricultural products.

Monita issued a report commented that China's demand has become the "bright spot" of global supply and demand adjustment.

China's cotton production is also expected to continue to support global cotton prices.

In this update, USDA raised cotton imports in China and lowered the final inventory at the end of the cotton market, down from 30.5% last month to 28.1%.

For cotton, China is the biggest buyer in the world, and cotton is facing a reduction in China this year.

It is worth noting that

"Cotton accounts for about 46%~47% of the cost of Lu Tai products. Because of the high-end products produced by Lu Tai A, the proportion of cotton costs does not reach 60%~70%.

If cotton prices increase by 5%, the profits of Ru Tai A should be reduced by less than 5% and roughly 3%~4%. "

Zhang Keming, manager of Finance Department of Lu Tai A, told reporters in an exclusive interview.

Lu Tai A is in the cotton spinning industry, mainly engaged in the production and sale of yarn dyed fabrics and shirts, and the sales of yarn dyed fabrics account for about 80% of the total sales volume of the company.

In order to reduce the impact of raw material long staple cotton supply and price fluctuation, Lu Tai A has been taking various measures, including holding long staple cotton in Xinjiang Lu Tai, tracking the changes in the cotton market, timely and reasonably increasing or reducing cotton reserves, signing long-term framework agreement with major suppliers, establishing long-term and stable supply relations, actively acquiring cotton import quotas in China, and acquiring the initiative to flexibly allocate domestic and foreign long staple cotton purchase ratio.

"Now that cotton prices have gone up high enough, then they will go up again?"

Zhang Keming sighed, "compared with peers, the quality of Lu Tai's products is high, and the profit in the industry is at the leading level, and the impact is smaller."

This is due to its low price hoarding on long staple cotton.

At the end of 2009 and early 2010, Lu Tai A purchased about 30 thousand tons of long staple cotton at the price of 20 thousand yuan / ton.

At the end of the first quarter of 2010, inventories of Lu Tai A reached a record high, reaching 1 billion 384 million yuan, much higher than the 1 billion 230 million yuan at the end of 2009.

Since new cotton was listed in September, the purchase of cotton from Rutai A includes cotton imports, which basically occurred in the second half of 2009.

However, analysts interviewed by reporters generally believe that Lu Tai A is still facing the pressure of cost of raw materials.

Tianxiang investment, Orient Securities and China Merchants Securities both pointed out that the low A cotton inventory was gradually used, but cotton prices continued to operate at a high level. In the future, the pressure on raw material costs will lead to a gradual fall in gross margin.

Lu Tai A three quarterly report shows that the gross profit margin in the third quarter was 31.26%, down 1.37 percentage points compared to the same period last year, a decrease of 2.46 percentage points.

The main reason for the decrease in gross profit margin is the rising cost, including the cost of raw materials.

Most analysts believe that Lu Tai A's low price cotton reserves can only be used in November 2010.

From the inventory level, Lu Tai A's inventory at the end of the three quarter was 1 billion 100 million yuan, compared with 6 yuan at the end of 1 billion 325 million yuan inventory, has dropped sharply by 17%, compared with the past, the second quarter inventory dropped only 4% than the first quarter.

Moreover, the cotton reserves of Lu Tai A were mainly purchased in the second half of 2009 and the first half of 2010.

If the new cotton year is coming this year, if A does not want to buy cotton at a high price, cotton reserves will eventually run out.

"Inventory should be available in the first 1 months of 2011.

It is said that the use of November is based on the amount of inventory divided by monthly consumption.

However, we have overlooked one point. In addition to cotton reserves, Lu Tai's raw materials are mainly cotton yarn. At present, Lu Tai's cotton yarn self production can meet 70%, as long as the purchase of 30%~40%, in addition, Lu Tai also has a considerable part of the storage yarn purchased, the two add up to use in mid 1 months of 2011, did not ask questions.

Zhang Keming told reporters.

As for Lu Tai A annual report mentioned in Xinjiang Lu Tai to achieve 30% cotton self sufficiency, self sufficiency is not enough to achieve the above 70%.

Zhang Keming explained: Xinjiang Lu Tai only accounts for 1/10 capacity, yarn production capacity is mainly in Shandong.

CIC securities analyst Kong Jun also told the investor newspaper that 4 and May were informed that Xinjiang's annual average annual cotton supply was 5000 tons.

Products will continue to raise prices.

It seems that it seems that the purchasing cost of cotton in 2010 is basically locked. The increase in cotton prices has no effect on the performance of 2010. But how can A respond to the problem when the cotton reserves are exhausted in the first 1 months of 2011?

In this regard, Zhang Keming said: "high cotton prices will not continue, although high cotton prices, but the volume is very small, enterprises will not buy and store large quantities.

If cotton prices continue to rise, the terminal products will also raise substantially, otherwise, many enterprises will not be able to maintain normal profits and turnover.

For the current Ru A product has been priced at 17%~20%, Zhang Keming said: "not already raised prices, but from 9, October, to the customers in the future 2~3 months after the price of 20%, because the general 2~3 month is a cycle."

The problem is that the price of Ru A's yarn dyed fabric and shirts even increased by 17% and 20% respectively, but the price of raw material long staple cotton is doubled.

Zhang Keming said: "we must continue to raise the price. If the price is raised 40% at a time, customers will not be able to accept it. This is a process.

When the price is raised by 20%, Lu Tai can still make a profit, and for a very good company, there may be no guarantee of profit, which will force the market price to rise again.

Zhang Keming said that now Lutai A does not take long orders, "do not want to increase the price can only drag back, some enterprises, with the current cotton price cost, the order is a deficit, then can not pick up." cotton prices fluctuate greatly, production costs can not be determined, enterprises do not dare to sign long-term orders, and some small and medium-sized textile enterprises can only choose to cut production or stop production. However, reporters from Lutai A internal staff know that Lu Tai is now operating normally, and has not heard of limited production.