资讯 1 10 英文网 405 CNCotton Reports 543665 Reserve policy holds the key -- CNCotton Monthly Report (April, Part2) 2015-05-06 19:20:16
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Reserve policy holds the key -- CNCotton Monthly Report (April, Part2)
2015-04-23
 

Analysis

 

The 2015 target price is announced at 19100 yuan in April. Domestic cotton market was steady. Sales of inland cotton were slow but Xinjiang price held firm. Consignment lots became less attractive and mill’s purchase is shifting to Xinjiang cotton.

 

According to the prospective planting survey by NCMMS in mid March, 2015 cotton area is projected at 51.187 mil mu, down 12.911 mil mu or 20.1%. Planting in the Yellow River Basin is forecast at 8.376 mil mu, down 33.8%. Both Hubei and Jiangsu will see an acreage loss above 40%. Cotton area in the northwest region totals 31.419 mil mu, down 9.6%. Xinjiang planting falls 9.0%. Cotton growers have been adjusting planting structure substantially. Many growers in Xinjiang are devoting more land to ELS, spring wheat and walnut and reducing upland areas.

 

The timely publish of 2015 target price will help maintain a steady market expectation. While 19100 is 700 yuan lower than last year, it remain well above market expectation, which indicates that government gave a full consideration of the interest of cotton growers when keep moving toward a market-driven process. The price received a positive response from the industry and ZCE cotton rebounded. With Xinjiang target price now decided, inland growers are anxious about the payment to inland areas.

 

Xinjiang price stabilized in March as ginners have mostly paid off the loans. Hand-picked styles were particularly strong. Current Grade 2 hand-picked offers stay at 13500-13700 yuan per ton, and Grade 3 is offered at 13000-13300 yuan. High grade hand-picked supplies is now less than 1 mil tons. Some enterprises have become increasingly bullish on the decreasing supplies. Compared with hand-picked cotton, machine-harvested cotton has a higher trash and a lower strength, but prices are 300-400 yuan lower. Generally, Xinjiang cotton is given 50-100 yuan discount in actual sales.

 

Inland sales were slow and price remained soft. T31228 and T4128 were offered at 12600-12900 and 12300-12550. Ginning activities are only noted at the ginners with an ideal quality control.

 

As of April 17, national cotton harvest and delivery were basically completed. Cotton ginning reached 94.2%, down 5.4 points. Xinjiang ginning is completed. National cotton sales reached 60.4%, down 36.1 points. Xinjiang sales reached 60.5%, down 39.5 points. With a production of 6.621 mil tons (NCMMS March forecast), by April 10, seed cotton delivery equaled to 6.264 mil tons of lint cotton, down 632,000 tons from a year ago. Xinjiang cotton delivery totaled 4.309 mil tons of lint cotton and inland delivery totaled 1.955 mil tons. Cumulative processing reached 5.901 mil tons, down 965000 tons year on year. Xinjiang cotton ginning totaled 4.309 mil tons and inland ginning totaled 1.592 mil tons. National cotton sales reached 3.786 mil tons, down 2.87 mil tons. Xinjiang cotton sales reached 2.606 mil tons, inland sales reached 1.181 mil tons.

 

Mill inquiry has been focusing on April/May delivery of U.S., Brazilian styles and June/July shipment of Australian cotton. While U.S. consignment kept increasing in March and April, the high quality only has a small share and the general quality is below expectation. Aussie offers for June and July shipment is well above mill’s price and offtake was limited. Some medium and large mills are shifting their buying to high quality Xinjiang hand-picked styles and pay more for better strength and fiber length.

 

The mill sector is performing well with good sales. Robust demand and increased buying intention were noted. NBS data shows that March textile and garment sales posted strong growth which fared better with the gross retail sales. March and April are the traditional peak season for textile and garment sales. Cotton yarn sales in Shandong, Anhui and Jiangsu have turned from deficit to profit. Business has improved substantially from the days before the Spring Festival.

 

Social retail sales expanded 10.2% in March. Garment and related sales surged 13.9%, up 5.3 points from a year ago and 4.8 points above previous month. Sales by 50 largest retailers rose 0.6% in March and garment sales decreased 4.3% year on year. This is 7.8 points less than the growth recorded a year ago and also 10.5 points below the level recorded in January and February. For the first quarter, garment retail sales rose 3.5%, up 4.5 points from the growth of a year ago. China Customs reported that March export trade plunged, with textile and garment export falling 32% from a year ago. This has much to do with the Spring Festival.

 

According to NCMMS, production-to-sales ratio of yarn and fabrics climbed in the past month and inventory fell. By early April, yarn ratio rose 9.8 points from previous month to 97.8%, up 0.7 point from a year ago. Yarn inventory is equivalent to 22.2 days of sale, down 6.6 days from previous month and down 3.8 days from a year ago. The fabric ratio was 104.4%, up 21 points from previous month and also 10.8 points from a year ago. Fabric inventory is equivalent to 54.5 days of sale, down 5.7 days from a month ago and up 5.9 days from a year ago.

 

With improved sales and profit, mills are showing greater demand for raw material. Current industrial stock is relatively low compared with historical average. By early April, average industrial stock was 30.3 days, including port arrivals, up 1.5 days from a month earlier and down 3 days from a year ago. National industrial cotton stock is pegged at 651000 tons, up 5.1% from early March and down 9% from a year ago. By early April, 72% mills intended to purchase, up 22 points from a month ago and up 3 points from a year ago. 28% were undecided, down 19 points and 3 points respectively. No one refuse to buy cotton.

 

Despite this however, given current market situation and policy, mill buying will not expand significantly. The industry is still under tremendous pressure from elevated production cost and sluggish sales. Numerous small enterprises are either suspending operation or shifting to other industries. The cotton use is definitely on a decline. Also, the upgrading of textile products leads to a major change in cotton consumption and demand for high quality styles is particularly strong. Current domestic supply does not meet the demand of spinning mills. Moreover, reserve policy remains the biggest concern.

 

The industry has generally accepted the target policy and domestic cotton price is very close to the bottom during a self-motivated moving process. From the supply side, we have a relatively lower beginning stock and a very tight supply of import quota. With new crop sales now more than 60% complete, cotton held by cotton growers and ginners is estimated at 2.8 mil tons, and much of it belong to low grades. From the demand side, mills continue its hand-to-mouth buying strategy and there is also little room to bring down cotton use or inventory. There is a need to expand purchase as sales picked up.

 

Reserve policy is most critical for mill buyers. The final decision is anybody’s guess. Even if the policy is announced, the period of implementation, aggressiveness and its impact will still be very uncertain. Generally, the reserve sales will increase domestic supply and a declining market seems inevitable.

 

Reserve selling will do little to ease the structural problem in domestic supply. The market now expects the reserves to cover the supply deficit of high grades. A heavy reserve tender should result in steep price drop, but high quality imported cotton and high grade domestic crop will remain firm.

 

Forecast

China Cotton Balance Sheet (NCMMS April forecast)

                                                                                                                                                  In 10,000 tons

Items

2013/14

2014/15

2015/16

April

MOM

YOY

April

MOM

YOY

April

MOM

YOY

Beginning

1166.5

+2.8

+57.9

1358.8

+6.3

+16.5

1383.4

+11.6

+1.8

Production

699.7

0

-8.1

662.1

0

-5.4

545.1

0

-17.7

Import

300.4

0

-31.7

173.3

0

-42.3

175.2

0

+1.1

Consumption

781.4

-3.4

-1.2

778.7

-5.2

-0.3

782.1

-3.7

+0.4

Export

0.9

0

+0.4

1.8

0

+95.1

1.5

0

-18.4

Ending

1358.8

+6.3

+16.5

1383.4

+11.6

+1.8

1290.7

+15.3

-6.7

S/U

173.69

+1.6

+17.9

177.25

+2.7

+2.0

164.72

+2.7

-7.1

Source: NCMMS