Depth Analysis Of The Impact Of Cotton On PTA Prices

Since September this year, the price of cotton has fallen short of demand.

Chart 1: cotton and polyester price map

The picture shows cotton polyester price trend chart.

(source: CCf, Hongyuan Futures Research Center)

Chart 2: cotton and PTA comparison chart

The picture shows the trend of cotton and PTA price comparison.

(source: CCf, Hongyuan Futures Research Center)

In view of the replacement of polyester staple fiber to cotton by investors and the effect of cotton on PTA, the following is a deep analysis from the perspective of industrial chain and price difference and price ratio.

1, basic logic of cotton and PTA

Cotton belongs to agricultural products, PTA belongs to petrochemical products, but downstream of the two are linked to the textile industry. Let's first look at the cotton and PTA industrial chain.

Chart 3:PTA industry chain map

The picture shows the PTA industry chain.

(source: CCf, Hongyuan Futures Research Center)

The above is the PTA industry chain. The upstream raw material is PX extracted from crude oil step by step. Downstream is the production of polyester with ethylene glycol (MEG). The production of PTA is relatively concentrated. About 90% of the PTA is used for the production of polyester, including polyester and staple fiber, accounting for 38% and 62% respectively. Polyester filament can be directly used for textile, while staple fiber is blended with cotton to produce cotton yarn.

According to the different characteristics of cotton and staple fiber, manufacturers can choose different proportions of cotton and staple fiber to produce different polyester and cotton, which also produces the substitution relationship between cotton and staple fiber.

PTA is the main raw material for producing polyester staple fiber, which accounts for more than 80% of the production cost of polyester staple fiber. The price correlation between PTA and polyester short this year is 0.75.

Therefore, the substitution relationship between cotton and PTA is an indirect substitution. This substitution is based on the precondition that PTA price is conductive to polyester price. When PTA and polyester staple fiber price trend deviate greatly, it is like "passive water and no wood" to study the substitution effect of PTA on cotton.

Secondly, considering the actual situation, the distribution ratio of many textile enterprises is based on orders, and their choice is not too large, but it does not rule out that when there is a specific price difference, some enterprises can adjust the proportion of polyester, cotton and cotton in spinning raw materials according to their own conditions.

In addition, when the price of cotton can be effectively pferred to the lower reaches, the increase in the amount of staple fiber to replace the power of cotton is smaller.

2, cotton and polyester spreads and parity:

Judging from the normal price difference before 2008, the price of 328 grade cotton should be 2000-3000 yuan / ton higher than that of the same period, and the price ratio is over 10%-20%.

In general, when the price ratio exceeds 20%, some market demand will turn to polyester short, thus reducing the proportion of cotton. When the price is below 10%, a part of the market demand will turn to cotton, thus increasing the proportion of cotton.

The change in the price of cotton and polyester directly affects the change of price and price, and then affects the demand of cotton or polyester, and eventually leads to the return of the price of cotton and polyester to a relatively reasonable price difference or price range.

Chart 4: cotton polyester spread chart

The picture shows cotton polyester price difference chart.

(source: CCf, Hongyuan Futures Research Center)

Chart 5: cotton and polyester price map

The picture shows cotton polyester price trend chart.

(source: CCf, Hongyuan Futures Research Center)

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3. Case analysis of cotton polyester ratio

Cotton is an agricultural product, and the demand for agricultural products is more rigid than that of industrial products. Therefore, the resistance of agricultural products is stronger than that of industrial products.

When the financial crisis broke out in 2008, commodities fell sharply, and cotton fell less than PTA.

The source of PTA is crude oil. Crude oil as a leading commodity is closely related to the macroeconomic situation. During the economic crisis, crude oil fell from 147 US dollars / barrel to 35 U.S. dollars / barrel, and PTA also fell sharply with crude oil.

Under such circumstances, the ratio of cotton to polyester increased rapidly from 1.19 in September 1, 2008 to 1.69 in November 3, 2008.

At the end of the year, with the introduction of national rescue policies, commodities began to stabilize and cotton to polyester ratio returned to a concussion.

However, this shock interval has risen to a new level, breaking the limit of the original cotton to polyester ratio of 1.3, and probably oscillating between 1.33-1.69.

Due to the shortage of supply, in April this year, even under the backdrop of the European debt crisis and the expectation of RMB appreciation, it has not stopped the pace of cotton rising, and has constantly refreshed its record highs.

On the other hand, the trend of PTA, which belongs to textile raw materials and cotton, is obviously much weaker. Even during the peak season of spring demand, it hasn't been able to launch a decent rise. After entering May, with the intensifying European debt crisis, crude oil has plunged sharply, and PTA has been losing thousands of miles.

This result directly leads to a breakthrough of 1.7 in cotton fiber ratio.

Chart 6:PTA index and cotton index chart

The picture shows the PTA index and the cotton index chart.

(source: CCf, Hongyuan Futures Research Center)

Cotton prices rose sharply in September of this year, and cotton prices rose much faster than cotton yarn. The price was difficult to conduct downstream. Cotton yarn quotas increased, and sales dropped sharply. Therefore, many manufacturers reduced cotton consumption and increased polyester and short chemical fiber consumption. Although chemical fiber prices also rose, the increase was smaller than cotton prices, which correspondingly reduced the pressure of high cotton prices.

As a result, the demand for polyester staple fiber has increased dramatically, and manufacturers have been in short supply. The price of polyester and short stakes has been suppressed for a long time.

The most obvious period is the Mid Autumn Festival to the National Day holiday. Due to the rapid rise of polyester staple fiber during the holiday season, it has risen more than 15% in 2 weeks.

PTA upstream PX costs continue to rise, PTA prices are low and supply and demand is tight, the soaring price of cotton makes PTA have strong demand for parity repair, leading to PTA price rise after holiday.

The introduction of quantitative easing monetary policy by the Federal Reserve on 3 November strengthened inflation expectations and became the trigger for PTA's four consecutive trading restrictions. The return of the price difference has become an important factor for PTA's sharp rise.

Chart 7: cotton yarn spread chart

The picture shows the spread trend of cotton yarn.

(source: CCf, Hongyuan Futures Research Center)

Chart 8: cotton and polyester price map

The picture shows cotton polyester price trend chart.

(source: CCf, Hongyuan Futures Research Center)

4. Conclusion:

First, the same as textile raw materials, cotton and PTA have different quotes, mainly because of the underlying factors of their dominant market are different.

The rise of cotton is largely due to the reduction of production and the reduction of supply caused by weather. PTA, as an industrial raw material, can continuously produce continuous consumption, and its output is mainly affected by the rate of operation. The operating rate of PTA enterprises is directly proportional to the profits of PTA production, and its supply can change at any time.

In addition, the price of PTA is restricted by the cost of upstream crude oil.

Second, the regression of cotton and PTA parity must exist in the fundamentals.

For example, the driving effect of cotton on PTA depends on the degree of substitution of downstream cotton producers with polyester cotton in reality.

The degree of substitution of cotton to cotton includes two factors:

1. when the cotton is rising, if the cotton yarn is also rising, then the cotton price will be pmitted smoothly, so the power of the commercial polyester staple fiber instead of cotton will be smaller.

If the conduction is not smooth, the manufacturer will replace cotton with low cost PET staple, and then increase the PTA.

2. polyester staple fiber itself is oversupplied, and price sensitivity to substitution is low, so it is difficult to pass on to PTA.

Short supply of PET staple will enhance the pmission of PTA.