Viewing China's Cotton Pricing Right from Market Structure

The healthy development of cotton ** is of great significance to China's cotton textile industry and is also the key to seizing the pricing power of cotton.

The market should continue to promote the development of institutional customers and hedge customers, strengthen investor education, and increase the participation of spot companies.

In 1982, China’s cotton production jumped to the top in the world, followed by a rapid increase in cotton imports and consumption. At present, China's annual cotton consumption is about 10 million tons, accounting for about 40% of the world's annual cotton output. Because the annual consumption is significantly higher than its own output, the gap is 3.5 million tons. China's cotton needs a lot of imports, and price fluctuations have a greater impact on the profits of the textile industry. However, China's cotton textile industry is in a completely competitive market structure. The decentralization and competition of various market players in the industry coexist, making it difficult to have a large impact on cotton prices. It is often in a disadvantageous position in trade and facing the embarrassment of lack of pricing power.

Theoretical Analysis of Cotton Pricing Right

In the cotton textile industry chain, cotton is both a commodity and a raw material. The price of cotton as a commodity reflects the sum of the materialization costs, labor costs, and plantation profits of agricultural production. As raw materials, the price is an important factor affecting the price of textile industrial products. It has a greater impact on the prices of finished textile products. An important bridge in agriculture and industry. From the point of view of benefit distribution, the exchange of cotton as a commodity has achieved the value of agricultural production, and the final product has achieved the value of industrial production. The price level of cotton and its products is the key to the distribution of benefits in the industry chain. Under natural economic conditions, changes in cotton prices only affect the distribution of benefits within the domestic industrial chain. After the introduction of cotton trade and textile trade, this change has affected the distribution of benefits between domestic and foreign agricultural and industrial sectors, thus affecting the integration of the textile industry. Competitiveness. Therefore, it is crucial to seize the pricing power of cotton. The main factors affecting the price of cotton as a commodity are the following:

1. Cost of production

The cost of cotton production is the most important factor affecting cotton prices, and it is also a key link in the cotton industry's pricing power. However, there is great uncertainty in agricultural production. Weather, rain, and other natural factors have a large impact on production. Often production costs are low in regions with high yields, and production costs are high in regions with low yields, so cotton production costs are more volatile. According to the 2010 International Cotton Production Cost Survey conducted by the International Cotton Advisory Committee, in the cotton year of 2009/2010, the world's lint production cost was approximately US$8.2/kg, with net production costs in Asia and West Africa averaged US$7.7/kg.

2. Market supply and demand

Cotton market supply and demand have a greater impact on cotton prices. According to economic theory, price is a combination of supply and demand. The relationship between supply and demand will affect price levels and changes. From this perspective, it seems to explain why China's cotton industry is at a disadvantage in pricing power. China is one of the largest demand countries for cotton. Domestic demand has increased, leading to a supply gap and the price of cotton has risen. At the same time, China is also the largest supplier of textiles in the world. The supply of domestic textile enterprises is too large, and their prices will inevitably fall.

3. Industrial policy

The cotton industry policy is mainly cotton production and import and export policies. The cotton production policy is mainly the government's support policy for the cotton industry. In the United States, for example, the United States has given higher subsidies to cotton farmers in order to stabilize its domestic cotton acreage. According to statistics, from 1999 to 2003, the US cotton producers received a total of 12.4 billion U.S. dollars in subsidies, while the cotton output value during the same period was only 13.9 billion U.S. dollars, and the subsidy ratio was as high as 89% of the output value. The higher cotton subsidy rate makes American cotton farmers have a greater advantage in cotton pricing.

Completely competitive market structure

China's textile industry has formed a completely competitive market structure in the course of development. There are numerous market participants and the impact on prices is relatively small. This has hindered China's cotton industry from exerting pricing power.

1. There are many market participants and there is a serious homogenization

The threshold for entry into the textile industry is low, the demand for technology and capital is not high, and the profits are relatively considerable, so the industry is developing rapidly. As of the end of 2010, there were 55,391 textile enterprises above designated size in China, including 42,563 private enterprises, accounting for 76.84%, 5,754 Hong Kong, Macao and Taiwan holding companies, and 4,328 foreign-controlled enterprises, accounting for 10.39% and 7.81%, respectively. There are only 651 state-owned enterprises, accounting for 1.18%. There are numerous players in the textile industry, with intense competition and low market concentration. In addition, China’s own production and design brands are less. Among the export products of the textile industry, except for a few well-known domestic brands, the overwhelming majority are OEMs of foreign brands, which have a low added value, which directly leads to the textile industry’s Passivity in textile pricing.

2. Cotton processing and textile production capacity is severely overheated

According to statistics from the China Textile Inspection and Quarantine Bureau, as of the first half of 2012, China had a total of 1,737 400-type cotton processing companies. Together with 200-type enterprises and small-packet cotton enterprises, China's annual cotton processing capacity exceeded 35 million tons. The annual output of cotton in China is about 7 million tons, and the annual processing capacity is about 5 times of the output. When the processing profit is high, the market will have the situation of snapping up resources and driving up prices; when the processing profits are low, there will be situations of suspension of production and production and idle equipment, resulting in serious excessive competition and waste of resources, which will exacerbate cotton prices. fluctuation. This has caused great damage to the entire cotton industry chain. Cotton farmers are worried about losing cotton at a loss, cotton supply is decreasing, and prices are rising. Cotton textile companies have to buy high-priced cotton.

3. Capital speculation in circulation has pushed up cotton prices

In recent years, the sources of funds for the cotton market have become more diversified. In addition to the original policies on agricultural issuance, commercial capital, private capital, and other funds have been injected into the cotton market one after another to snap up resources to compete for the cotton price difference. The financial attributes of cotton have continued to increase. appear.

4. Traders are not familiar with the use of imported cotton

At present, in international trade, soybean, wheat, cotton and other bulk products usually adopt a point price trading method, that is, the exchange price of a certain exchange month agreed by the two parties is the benchmark price of spot trading, and then increase. Premium, as the final delivery price. The point price model is beneficial to importers in bear markets, but he needs to buy hedging in bull markets to avoid the risk of price increases. Domestic traders lack a rational analysis of prices when importing cotton, and they are not skilled in applying hedging, and are prone to misdirection.

Olive-type cotton textile industry pattern

At present, China's cotton textile processing capacity is relatively strong, while raw material production and textile consumption capacity are low, presenting two small and medium-sized "olive" industries. Imports of raw materials and textile exports have made up for the lack of domestic sales of raw materials and textiles and improved the industry's conduction path, but have also increased the degree of foreign dependence on the domestic cotton textile industry.

1. Raw materials and textile exports are more dependent on foreign countries

China's cotton consumption is far greater than its output, and it can only rely on large amounts of imports to make up for the shortfall. Taking the 2010/2011 cotton year as an example, China’s cotton production is 5.7 million tons, while consumption reaches 10 million tons, and the gap is 4.3 million tons, based on the consumption of the original cotton inventory, from September 2010 to 2011 8 Month, China's total imports of 2.58 million tons of foreign cotton, raw materials, foreign dependence on the amount of 45%. From the point of view of textile exports, Europe and the United States have experienced a weak economy. China's textile and apparel exports have slowed down significantly and have even had to adapt to changes in the market by increasing the proportion of domestic sales.

2. Low added value of textile products

At present, China's textile industry relies too much on low-cost comparative advantages, has a serious shortage of product design and R&D investment capabilities, and has fewer independent brands and is at the low end of the global supply chain. As a low-cost processing factory for textiles in the world, China can only share a meager processing cost in the global industrial chain profit distribution. Over 90% of the value-added products are at the high end of the industry chain, branding, design, marketing, storage and transportation, and services. occupy. Domestic textile enterprises should intensify their innovation efforts, infiltrate high-value-added links such as R&D and brand marketing, and integrate the industrial chain to increase the pricing power of textile products and truly integrate into the global industrial chain.

Zhengmian ** has greatly increased its influence

An important way to improve China's cotton pricing power is to develop cotton. The price of cotton ** is a reflection of the spot price of cotton, and its price changes have an important effect on spot prices. The New York Stock Exchange is the most important cotton market in the world. Since 2004, the trading volume of cotton on the New York Stock Exchange began to decline with the listing of the cotton ** on the Zhengzhou Commodity Exchange. However, the price of Zheng cotton ** has long followed the price trend of US cotton. In 2010, Zhengmian's trading volume exceeded the New York Stock Exchange for the first time and became the world's largest cotton trading market. In the cotton price roller coaster market from 2010 to 2011, Zheng Cotton gradually emerged from the shadow of US cotton, and began to walk out of independent market conditions, gradually increasing its pricing power.

From April to May 2010, Zheng cotton ** rose ahead of the US cotton **, driving the price of cotton ** rose sharply. From August onwards, Zheng Cotton spurred ICE Cotton ** to rise quickly, setting a new record high after the platform. During this period, domestic cotton textile companies contracted for procurement on the international market, locked in low-cost resources, improved their competitiveness, and significantly improved their profit margins. From the end of March to October 2011, Zhengmian ** reached a new high and quickly fell back, guiding the price of cotton ** to the closing price of 19,800 yuan. In the process, the volume of Zhengmian ** ** kept renewing, with the highest single-day volume reaching 3.59 million contracts, equivalent to 18 million tons of cotton, and the influence was greatly enhanced. In October 2011, Zhengmian ** rebounded before the US cotton bottomed out, successfully stabilizing the market conditions in the late period of storage and storage. Zhengmian **'s pricing power gradually played its role as a reference for domestic textile companies. During the cotton procurement process, when the price of Zhengmian cotton rises first, the company can increase the purchase volume of cotton. When the price of Zhengmian cotton first declines, the amount of purchased cotton can be reduced. At the same time, the price can be used to lock the risk.

Thinking of improving China's cotton pricing power

According to the characteristics of China's cotton spinning industry structure, the following measures can be taken to improve the cotton pricing power:

1. Effectively strengthen the planning, coordination, and guidance of governments and industry associations

Local governments should rationally plan the layout of the textile industry, avoid low-level repeated construction of projects, and effectively formulate industry withdrawal mechanisms. They should reasonably guide small and medium-sized textile enterprises with backward technologies and poor adaptability, and eliminate backward production capacity in a timely manner. In addition, the role of the textile industry associations should be brought into full play to make it play an active role in limiting production, import coordination and guiding structural adjustment among enterprises.

2. Horizontal integration among cotton processing companies

By increasing the scale of textile companies, increasing market concentration and enhancing the right to speak for companies. In the horizontal integration process, foreign capital can be used appropriately, but excessive development of foreign capital should be prevented so as to avoid a more unfavorable position in pricing. The government and related departments can also introduce relevant policies to support industry integration, such as tax incentives and capital incentives, to guide and encourage the consolidation of domestic companies.

3. Promote vertical integration of the industrial chain

Vertical integration refers to the integration of enterprises related to the cotton industry chain. For example, cotton production, distribution, and processing are merged into one company, so that it can avoid the influence of the price fluctuation of production factors on its production, and through internal coordination within the company. Digestion to reduce the impact of price fluctuations, but also reduce the excessive competition between affiliates.

4. Give full play to the role of the ** market

The healthy development of cotton ** is of great significance to China's cotton textile industry and is also the key to seizing the pricing power of cotton. At present, the domestic cotton ** market has developed rapidly, but at the same time the total quality has not improved significantly. The ** market participation structure needs to be improved. The market should continue to promote the development of institutional customers and hedge customers, strengthen investor education, and increase the participation of spot companies. At the same time, increase the storage capacity of cotton stocks, reasonably arrange cotton delivery warehouses, improve the throughput of cotton, reform the system that is not conducive to spot hedging, and truly bring into play the role of the market in serving the real economy.