What’s the impact of new policy on ELS cotton?

In mid-September, cotton harvesting was well underway in Xinjiang. According to cotton growers in Akasu in south of Xinjiang, harvesting of long-staple cotton has begun, with some cotton growers having reaped 70-150kg/mu. At what price point the new and old long-staple cotton will come together has become an issue of general concern in the market. 

Recently, the prices of homegrown long-staple cotton have been declining slightly. As of September 17, cotton dealers in Shandong and Hebei quoted Xinjiang-produced long-staple cotton at 28400-28500 Yuan/t for class 137 cotton, 27300-27500 Yuan/t for class 237 cotton and 26800-27000 Yuan/t for class 337 cotton, all down by 200-300 Yuan/t from the September 1 levels. According to a major cotton dealer in Hebei, the commercial inventories of long-staple cotton nationwide at present were less than 10000 tons, mostly in the hands of 10-odd major cotton dealers, while cotton mills and small and medium-sized cotton dealers are running out of stock. Most cotton dealers are unwilling to sell since the costs of long-staple cotton in 2013 were 34500-35000 Yuan/t. 

The prices of imported long-staple cotton are slightly higher than those of homegrown counterpart. According to portside traders, the quoted price of imported pima cotton and Egyptian giza cotton 88 after customs clearance is currently at 29200-29700 Yuan/t, generally with a bargaining room of 200-400 Yuan/t during the actual transaction process. Given the current quotations, the quoted price of imported long-staple cotton is 300-800 Yuan/t higher than that of cotton produced locally in Xinjiang and 100-200 Yuan/t higher than that of long-staple cotton produced by production and construction corps. The cost-effectiveness of imported long-staple cotton remains superior to homegrown counterpart due to the former being paid for on the basis of net weight and relatively low level of impurity found in the former.  

The downstream demand is bouncing back. According to some companies in Zhejiang and Jiangsu, since the beginning of the golden September, sales of high-count and high-spinning yarn has improved slightly, as 50% long-staple cotton combed yarn of 70 counts is quoted at 44100-44200 Yuan/t and 50% long-staple cotton combed yarn of 80 counts quoted at 45000 Yuan/t ex works, both of which remained relatively stable and resulted in a slight increase in order volume for some companies. However, companies reported that they still prefer imported long-staple cotton when purchasing raw materials since homegrown long-staple cotton is poor-quality and high-priced, especially Xinjiang long-staple cotton produced in 2013. 

The demand for long-staple cotton is growing, but old Xinjiang cotton remains disadvantaged compared with imported long-staple cotton. The only way out in the near future is either to continue reducing the prices of old cotton or ensure the long-staple cotton to be marketed is high-quality.  

The long-staple cotton produced in this year is high-quality, high-output and low-price. Thanks to the favorable whether in Xinjiang throughout the year, the quality of both fine-staple cotton and long-staple cotton is better than that in last year. According to cotton growers, newly-picked long-staple cotton has a lint percentage of over 36%, is white and has long fiber. Cotton growers in Xinjiang expected that the output of long-staple cotton in Xinjiang this year to be about 50000 tons, 30% higher than the last year’s level, with an expected low initial market price. As a result of the direct subsidy policy, the market expects the initial market price of seeded long-staple cotton in Xinjiang this year to be about 10 Yuan/kg, much lower than the last year’s level of 15 Yuan/kg. Therefore, the marketing costs of Xinjiang-produced long-staple cotton this year will be lower than 25000 Yuan/t. 

Obviously, the gravity of price of new cotton will certainly be lower than the current level. In other words, the prices of previous-year long-staple cotton might continue dropping. Due to the enactment of the direct subsidy policy, the prices of homegrown fine-staple cotton dropped by 2000-3000 Yuan/t, thus driving the prices of downstream yarn down, especially high-count yarns.  

Given the high quality of new-season long-staple cotton and the operational status of cotton market this year, cotton mills are no longer turning in their cotton but instead directly selling cotton to cotton users, thus forcing cotton mills to pay more attention to quality. As a result, it is predicted that the quality of long-staple cotton will be significantly improved this year, probably holding back the decline in gravity of prices.

In summary, the declining gravity of prices represents the primary trend as the prices of new and old cotton come into the same line, while quality has the greatest bearing on price. Companies have to work harder to improve quality and reduce costs in order to sell their long-staple cotton for a higher price this year. 

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