A Collapse in China Cotton Price Desperate Cotton Spinning Enterprises
"In Dezhou, a city of Shangdong Province, China, 80% of the middle and small sized textile enterprises are closed, or on production restriction situation, almost all the textile enterprises are in difficulty.” Cotton association vice secretary of Dezhou city, Ma Junkai told the journalist in the morning of 12th Aug. China cotton spot price has fall from the peak of 32000CNY/t to the storage price 19800CNY/t, which brought about a shock that is more severe than the economic crisis in 2008.
“For downstream textile industry is not likely to recover soon, the upstream cotton stock is hard to be absorbed, cotton enterprises are mostly willing to sell off price reduction. Therefore, cotton price in China market will continue be slashed.”
Cotton price change likes “Roller Coaster”
Using roller coaster to describe cotton price drop is quite vivid.
Cotton price has surged since Sept 2010, until Mar this year, is hit the peak of 35000CNY/t for not only once. The high priced cotton price have made cotton farmers and cotton spinning plants excited, hereby, the logic of buying in at high is also applicable. Most people are waiting for a higher price to sell the cotton, so as the cotton farmers.
However, good times don’t last long. From 17th Feb this year, cotton price dropped from 34000CNY all the way, price changes every day, sometimes, the price dropped down by 4-5 thousand Chinese Yuan in merely three days, until the present storage price, the drop amount is over 40%.
Not only cotton spot price dropped all the way, in future market, cotton price is also depressed. Journalist find that, in Zhengzhou Commodity Exchange, cotton 1109 contract dropped from 34000CNY/t in Feb to 21000CNY/t, the dropped amount is nearly 40%. While in the international future market, New York Intercontinental Exchange Oct delivery future price is as high as $164.64/lb in Apr, but in the end of July, the price broke $100/lb, drop amount is also nearly 40%.
“Cotton yarn enterprise dropped even more.” 32S pure cotton yarn has dropped from 4000CNY/t in Mar to the current less than 20000CNY/t, over the past five month, the drop amount every ton is 50%. Cotton yarn spinning plants are mostly at loss.
According to the data of TTEB, yarn stock piled up since Nov 2010, the amount reached 22.08 day in May, which is more than the amount of 21.58 days during the economic crisis period in May of 2008. And it hit the new peak in June, which reached 35.2 days’ amount, far over the same period last year, which is 8.96days’ amount, and also far over the amount of 21.67 days in June of 2008.
Meanwhile, by the end of July, there is still 1.35 million ton of business inventory, which is 120 ton over the amount of the same period of last year, far more over the amount of 950 thousand ton in 2008 and the amount of 900 thousand ton in 2009.
Low price overwhelmed cotton enterprises.
“Cotton price big rise and fall, just like a disaster to the textile industry.” In Ma Junkai’s eyes, the market is a little irrational, from cotton farmers, yarn spinning plants, to the downstream weaving plants, garment plants and dyeing plants; all of them are busy with stocking cotton and cotton yarns. Now, cotton shortage gap lie has been evaporated, and cotton drop amount has reached as high as ￥10000/t. Some major enterprises that have ten thousands of cotton inventories will suffer from hundreds of million losses. Small business will go bankrupt once they can not bear. The shock is far more severe than the impact that brought about by the 2008 economic crisis.
General manager of Dexin Cotton Industry Co., Ltd (a company in Shandong province China) said that he feels so terrible, for years, he had never come across such a situation, the strange cotton price makes him not know what to do.
“We can but only barely sustain.” general manager of Tian Run Textile Co., Ltd. said, his yarn spinning plants can produce 40000 spindlens, which belongs to the middle and upper reach levels of the local area, “The market is very well when cotton price increased previously, but once the price dropped, the whole market became a mess.”
The general manager said that he had ordered some forward cotton in August last year, even sell by these cheap cotton, together with the current stock, and sell some leftovers, the loss is still high as 1500CNY. Over 20 plants were closed, taking up over 70% of the local area.
As a matter of fact, not only Dezhou, but also in Shandong Province, where there are most cotton textile enterprises, is beset with difficulties, some enterprises have stop production and some have restricted production or partly stop production.
President of Shandong Textile Industry Association Mr Xia Zhilin told the journalist, textile mill production has periodic, generally needs to save three month of cotton inventory, the previous cotton stock price is 29000CNY/t on average, which is far over the current price, thus lead to a great loss.
Who can control the cotton price?
"The Shandong cotton price slump is greatly influenced by the frequent price down adjustment in Weqiao area, where is always the wind van of Shandong cotton price, and its quotation has always been the reference of most cotton enterprises.” Present Ma Junkai said, and of course, spot cotton price is also influenced by the speculation in futures market.
Hereby, Weqiao refers to the Weqiao Textile Company Limited, which has the biggest production of 7200 thousand spindlens, ranking the first in China, it absorbs cotton 1000 thousand ton every year, taking a 10% of China’s cotton consumption.
The reporter noticed that, followed by the down regulation of lint cotton procurement price on 15th July by Weqiao, market cotton price has come across the fifth down regulation in a half of month, ZCE cotton index set a new biggest price drop since December, 2008. By which, panic emotion continue to spread in the cotton industry chain, including cotton growers, cotton merchants, and also textile enterprises.
In April, Weqiao Textile Company had down regulated cotton takeover price for 5 times in a row. The market source think, as a key government controlled enterprise, its quotation up or down, is not only just the enterprise act, but also indicate the government regulate and control intention.
“Through control and supervise the key enterprise to regulate the cotton market has been started since last year.” A market resource told the journalist. As for the cotton industry, policies have been used up, and for the moment, the national cotton stock is almost used up, but for the high imported cotton price, further issue import quota is meaningless, now the imported price is almost 4000 CNY expensive than the domestic price.
“The present cotton market is ill, which needs great attention of the relevant national department” the above market sources said, it needs policy support, including tax, loan, exportation and also some other aspects.
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