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Uncertainties

By Ana Allen,2014-02-19 05:58
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UncertaintiesUncert

    Uncertainties UncertaintiesMounting,

    CottonPriceBecomesVolatile

    pensionofcottonexportinIndiaand disaster-afiectingcottonyieldinPaki

    stanhaveledtosuchamarketanticipa

    tionthatcottonstockacrosstheworld istoshowanotherdeclinetrendinthe upcomingyear.1heunanimousmarket anticipationhasresultedinasurgein cottonpriceduringtheMidautumn

    Festival:thetransactionpriceforun

    loadingcottoninventorieshasincreased bynearlyRMB3,000/ton,thepricefor purchasingnewcottonhasgonebeyond RMB25.000/tonandthecostforthe importedcottonwithownedquotafefFect shipmentafterthenextSpringicestiva1) hasexceededRMB21,O00/ton.The drasticcofluctuationinspotcottonand cottonfutureshasreducedthemarket participantstobeextremelysensitive. Contractshaveplungeddowntothe limitbothincottonfuturesandmatch

    makingmarketasbullshavebegunto sellstocksforhedging.Inthecontextof highlnitia1pricefornewcottonarriv-

    als,hugeoperationalriskshaveposed aninevitableconcernforenterprises involvedincottondealings.InOctober. theseasonalsupplypeakofnewcot

    ton,threemainuncertaintiesshouldbe notedbybothlonginterestsandshort interests:it'sdiculttoforecasttheups anddownsoftheoutsidemarketdu

    ingthelongholidayoftheNationa1 Day;whetherthegrowthtrendofcon

    sumptionreflectedbytheCantonFair bereversedaftertheNationalHoliday; whethernewregulationpoliciesbeun

    veiledbytheState.Divergenceiniudg

    mentofproductionandsalessituation willleadtokeengameplayingamong marketinvestors.

    Thebullnlarketofcottonhas

    lastedfor23monthssinceNovember, 2O08.Marketanticipationforthe changeofcottonsupplyanddemand isthekeyfactoraccountingforthe currentriseofcottonprice.Against thebackdropofsurgingagricultural productpriceacrosstheworld,cotton priceistobearthebrunt.Moreover,as Chinaimportsaround1/3cottonfrom Cl=lJS

    ByHuangJunfei

    abroadandcottonpriceintheinterna-

    tionalmarketfuelsthatinthedomestic market,cottonpricecanhardlvbefree fromtheimpactofaworldwideiump inagriculturalproducts.Dynamic demandforcottonproductsbothin thedomesticandinternationalmarket isthemaiorcauseforahikeincotton price;fastrecoveryofdemandforcotton isanothercause.Threecharacteristics aredemonstratedthroughoutdifierent marketstages:1)thespotpriceofCOt- tonincreasespriortothef0rwardprice. andtheformerishigherthanthelatter mostofthetime;2)theUScottonprice advancesfasterthanthedomesticprice andtheannualaveragepricespreadbe

    tweentheinternationa1marketandthe domesticmarketislowerthanthepre

    viousyears;3)thepriceofcottonyarn isclosely1inkedwiththatofcotton. Thepricespreadofthesetwohasseen a17-yearhigh.Besides,alltimehigh

    profitfortextileenterpriseshasgreatly stimulatedconsumptionofcotton. Votatitebatancepersistsin

    cottonsuppI.yanddemand

    Asforcottonoutput,thesown

    areathisyearhasdroppedslirlycom

    paredwithoneyearearlier.Thecotton yieldperunitmayprobablyexperience

    a1ow1eve1.Thus.giventheadverse weatherandpeasants'bluntinitiativesin growingcotton,cottonyieldthisyear mayfallinsteadofimprovingcompared with1astyear.Asfarassuppliersare concerned,inadequatecottonoutputisa strongsupportforpricehike.Fromthe observationofsalesvolumeoftextiles bothinthedomesticandjnternational market,itisfoundthatdemandforcot- toninthesetwomarketsgrowssteadik Cottonsupplydemanddisequilibrium

    isinducedfromfluctuationinsupply ratherthanchangesindemand.This year.steadyincreaseindemandfrom thedownstreamenterpriseswhilede

    cliningyieldperunitplusaslightdrop insownareaserveaskeyfactorsthat directlypushupcottonprice.

    Inrecentyears,cottonsupplyis bleak,whileconsumptionfromthe downstreamenterprisesmaintainsan upwardmomentum.Therevivedtex- tileindustryinthefirsthalfoftheyear hasundoubtedl3,exposedthedomestic cottonsupplyshortage.Thedomestic textileretai1volumehasbeenincreas

    ingsteadilyduringthepastfiveyears withanaverageannualgrowthrateof 23%.Exceptanegativegrowthin2009,

    clothandyarnoutputhavemaintained anover10%riseinmostofthepast years.Regardingoverseasmarketde

    mand,recoveryoftextileexporthas stimulateddemandforcotton.During mostofthefirsthalfoftheyear,vol

    umeoftextileexporthasrisenbyover 30%.AccordingtotheTextileExport SurveyconductedbyCEBMGroup Ltd.,sometextileenterprisesdisclosed thatproductionforordershadbeen scheduledtoOctober.Thus,consump

    tionofcottonisprojectedtomaintain anupwardtrendinashortterm. AsChinaneedstorelyoncotton importtomeetthedomesticdemand throughouttheyear.China'scotton stockobviouslycannotregulatethe marketsupplydemand.Apartfrom

    stock,outputandimportarefactors regulatingthedomesticcottonsuppl~ Chinapossessestightoutputofnew cottonandhistorytellsusthatfluctua

    tionincottonoutputwillsharplyaffect cottonpriceintheupcomingyear.As cottonproductshavefewchangesin 2010,launchofnewcottoncanhardly keepdownthesurgmgprice?

    ChinasStateReserveBureau

    faitstobringdowncottonprice

    Sincethelatterhalfofthisyear, althoughtheStateReserveBureauhas announcedforseveraltimesthatitwill stabilizethedomesticcottonpriceby releasingcottonstock,actionshadnot beentakenyet.0nAugust10th,the Bureaustartedtorelease600,000tons ofcottonstockandonSeptember27th, ChinaCottonAssociationalsoindi

    catedtoinputanextra400.000tonsof cottonstock.Butagainstthefactthat theStateReserveBureauhasamere 300,000tonsofcottonstock,thereis intensehypeonChina'srigiddemand oncottonimportedfromtheUS.

    ThestockreleasedbytheState

    ReserveBureaumaybeconduciveto bridgethecottonsupplygapofthe textileindustryintheshortrun,asnew cottonwillstarttogotothemarket fromOctober,whichwillprovidemore cottonsupply.Butcottonsupplywill suffermuchmorepressurenextyear. Evenworse,thecurrentcottonauction bytheStateReserveBureauwil1trig

    gerpressureonbuildingupreserveina laterstage.Therefore,thestockrelease hasiustdivertedthecurrentpressureon supplytonextyear.

    TheUScotton

arecordhigh.

    domesticcott

    SoaringdemandfromChina

    significantlybecometight,buttheymay betightenedfurtherinfuture.Itispre

    dietedthattheUSDAwillcontinuetO increasetheinternalconsumptionand exportsinitsestimatesforSeptember andtocutitsstock.2heratioofcotton stocktoconsumptionisnearingalow notseeninthelast15years,whichwill beconduciveforariseincottonprice. Lastly,theICEfeaturesnetspecula

    tionbullratekeepsincreasing,andthe numberofsalescontractswithoutpric

    inghasapproachedarecordhigh,allof whichwillcreatefavorableconditions forhikesincottonprice.Thetechni

    calindexhasindicatedthattheIEC futureshavebeenoverbought,butthe abovepositivefactorswillhindercotton pricefromfallingbackgreatly. Cottonpriceintheinternational markethasalsoapproacheda10year

    highsince2010anditcontinuestopick inthcmonthsto

    comeowingtothe

    dccliningcotton

    Perunityieldand

    qualitycausedbythe

extremeweatherin

    China'smaiorcotton

    producingareas.The

    USDepartmentof

    Agriculture(USDA)

    expandimport,cotton

    priceintheinternational

    marketmayshootup

    further.1nthemeantime,

    cottonsupplywillstillbe

    shortofdemand

    theworldin2011

    hasprojectedChinawillimporta secondhistoricalhighof2,720,000 tonsofcottonin2010/2011.Secondly, depreciationoftheUSdollarhasalso drivencottonprice,bringingabouta promisingmarketforUScottonexport inthisyear.Recently,theexchangerate oftheUSdollaragainsttheJapanese yenhasslidetoa15yearlowwhile

    contractedexportofUScottonhashit ahistoricalhigh.TheUSDAhasesti

    matedanexportvolumeof3,266,000 tonsthroughouttheyear.Thestatus quoindicatesthattheestimatestillhas roomtoincrease.Thirdly,duringthe pastoneandahalfyears,theUSinter- nalcottonmarketfundamentalshave USDAshowthat

2011willstillsee

    acottonmarket

    definedbyexcessive

    demand.Although

    thegovernment

    mayreleasecot

    tonstockrecently,

    tightcottonsupply

    intwoconsccu

    tiveyearsisthedeterminant.Afterthe cottonstockpileshavingbeensoldout inauction,itwillbequitecertainthat insucientcottonoutputwilldefinitely boostthepricenextyear.

    Dyn

    amicdemandinemerging

    markets

    Steppingintothemidandlate

    stageofindustrialization,suchemerg

    ingeconomiesasChinaandIndiahave undeoneprof0undchangesinagricu1

    turaldevek)pment:1)laborcostinthe agricuhuresect0rhasc0nsiderdblVDne up;2)landisrapparcntlymoreeXpense thanbere:3)residents'lingstandard keepsimprovingwiththeacceleration Cl=ls

    ofurbanization.Soaringcostandrigid growthindemandwillexpeditethe occurrenceoftherisingcycleforfarm

    productprices.generallyfrom5%inthe past10yearstoaround10%.

    NexttoChina,IndiaandPakistan claimastheworld'ssecondlargestand thirdlargestcottonconsumerandtex- tilemanufacturerrespectiveHaving enactedvariouspoliciesin2009and 2010torevitalizethedownstreamtex- tileindustry,IndiaandPakistanboast muchpotentialforarisingcottoncon

    sumptionmarket.Notably,thesetwo countrieshavebeenvigorouslydevelop

    ingthedownstreamtextileindustry, andchevhavesimultaneouslydeveloped supportingpoliciestoplacerestriction oncottonandyarnexportinabidto ensureadequatesupplyforthedown

    streamtextileindustry.Qualitycotton yarnatreasonablepriceproducedby IndiaandPakistanismuchfavoredin theinternationalmarket.Restrictionon cottonandyarnexportimposedbyIn

    NDC

    diaandPakistanwil1inevitably1eadto tightsupplyintheinternationalmarket featuringpricehike.

    Moreover,accordingtoPakistan TextileMillsAssociation,inorderto meetdemandforcottonfromthetextile industry,aminimumof680,000tons

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