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Industry News | Time: Jun 23 2017 5:51PM
[2017 China Yarn & Fabric Summit (The 6th Imported Yarn Forum)]Application and status of basis on-call trading in China's cotton firms
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Xiao Fang, Chairman, Wuhan Yinpeng Holding CO., LTD., gives his report Application and status of basis on-call trading in China's cotton firms.

Mr. Xiao delivers his report in the following aspects: First, he introduced basis trading, which is the inevitable demand for trade development.

In addition, he pointed out the function of basis: Unfixed transaction price – only pricing formula is fixed (futures price + basis). Expansion from warehouse receipt to non-standard commodity – resource coverage is expanded. The tie connecting futures and spot markets – adjustment replacing delivery.

Finally, he introduced future of cotton basis on-call transaction. Enterprises who adhere to fixed prices will be wiped out. With basis on-call transaction mode developing, the challenge to buyers, especially to end users has just started.

Xiao Fang also presided over the round-table discussion on cotton market and how cotton and cotton yarn hedge for profits. Representatives participating in the discussion were as follows.

Ren Xinpu, Deputy director of Beijing Research Institute, Yong An Futures

Guo Chao, General Manager, Hebei Xingyu Textile Raw Material Co., LTD

Wei Gangmin, Chairman, Henan Tongzhou Cotton Trade Co., LTD

Liu Miao, Huafu Top Dyed Melange Yarn Co., LTD

This part focuses on the topic Cotton market predicament & how can players on cotton and cotton yarn market realize hedging and straddle? .

Firstly, Mr. Xiao asked Mr. Ren to review the cotton market characteristics during last crop year. Mr. Ren divided the market situation into three stages: moved up after declined driven by loose monetary policy, stepped into correction then and slipped weakly.

Secondly, Mr. Xiao asked Mr. Guo Chao to analyze the influence of warehouse receipt to cotton market according to cotton futures experience. Mr. Guo pointed out that the pressure from warehouse receipt is not the decisive factor impacting market trend, and spot cotton market exerts greater influence. Besides, he said that current warehouse receipt burden is not huge.

Thirdly, Mr. Xiao invited Mr. Wei Gangmin to analyze reserved cotton, namely government policy. Mr. Wei thought cotton market change is mainly affected by cotton auction policy, and cotton stocks will decline further. He said that China government is engaged in boosting cotton textile industrial development in China and enhance the competitiveness of textile sector. He thought quality of some upcountry cotton is also good, and cotton auction will be at least 2 million tons next year.

Fourthly, Mr. Xiao asked Mr. Liu Miao to analyze local cotton consumption in Xinjiang, and whether current cotton stocks can meet later demand in 2017? Mr. Liu expressed that monthly cotton consumption in Xinjiang is around 100-120kt now, and current stocks are slightly tight in Xinjiang. She said that spinning capacity in Xinjiang may reach the 20 million spindles target in 2018, which is scheduled to realize by 2020.

Fifthly, these guests present own view about cotton price trend. Mr. Liu, Mr. Wei, and Mr. Ren all thought cotton price is likely to decline after increased slightly.

Sixthly, guests delivered own opinion about the arbitrage opportunity on cotton and cotton yarn market after cotton yarn futures launched. Mr. Ren thought it is necessary to pay attention to price spread between cotton and cotton yarn. Mr. Guo thought basing point pricing trading may be weak. Cotton production may change greater than cotton yarn. He thought basing point pricing trading may be moderate, but actual transactions are likely to be scarce. Cotton yarn market may perform well.

Finally, they discussed the correlation between imported cotton yarn price and cotton yarn price in Zhengzhou Commodity Exchange. Mr. Liu thought imported cotton yarn and ZCE cotton yarn price will be indirect impacted when price spread between imported and Chinese cotton yarn is big. If the gap is small, the influence can be ignored.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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