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Insight | Time: Mar 12 2019 2:23PM
Delivery rules of ZCE cotton yarn futures significantly change
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In the past one year, transactions of cotton yarn futures were not active and the participation was not high. Zhengzhou Commodity Exchange published the revision of cotton yarn futures delivery rules on Mar 4. According to the revision, delivery subjects of cotton yarn futures expanded and the quality of benchmark product also changed significantly.

  Index New rules in 2019 Old rules in 2017
Benchmark product (ring-spun grey carded 32S/1 cheese) Cotton content 100% 100%
Linear density(tex) 18.2 (±2% allowed) 18.5
Actual twist factor 360-420 300-420
Breaking strength of single yarn(CN/tex) 14.0-14.7 ≥15.0
Strength converted from breaking strength of single yarn 255-268 ≥273
Coefficient variation of single yarn breaking strength (%) 8.5-9 ≤9
Coefficient variation of evenness (%) ≤15.5 ≤16.0
-50% thin place (per 103m) ≤10 ≤25
+50% thick place ( per 103m) ≤220 ≤340
+200% nep( per 103m) ≤450 ≤520
Nub ( per 105m) - ≤10
Coefficient variation of cotton yarn weight per 100 meters ≤2.2% ≤2.2%
Foreign fiber content (Per 200kg) 38-81 ≤80
Changes in delivery rules Delivery unit 20mt (conditioned weight). The delivery commodity in the same delivery unit should come from the same producer. 20mt (conditioned weight). The delivery commodity should come from the same producer and the same production lot.
Delivery place and method Shandong, Henan, Jiangsu, Zhejiang (delivery factory and warehouse), Hubei and Hebei (delivery factory) Shandong, Henan, Jiangsu and Zhejiang (delivery factory)
Inspection method The definition and inspection method of foreign fiber According to Classification and Inspection Method of Foreign Fiber in Textile & Yarn (DB41/T 1662-2018) According to Inspection Standard of Foreign Fiber in Cotton Yarn Futures

The figure above describes the key points of this revision.

Firstly, the indexes of benchmark delivery product of cotton yarn futures were adjusted, especially the actual twist factor. The product allowed to be delivery changed to the cotton yarn for weaving from the one for knitting and the one for weaving. And other indexes moved closer to those most cotton yarn mills can achieve and downstream weavers can accept.

Secondly, warehouse delivery was also allowed besides previous delivery factory. In addition, delivery factories in Hubei and Hebei were added, increasing market participants of cotton yarn futures and improving the trading activeness.

Thirdly, the definition and inspection method of foreign fiber content changed. The machine testing was used instead of original manual testing, which was more accurate.

Besides, the revision of delivery rules also changed the standard of substitute and premium.

Index Higher-quality substitutes Benchmark Lower-quality substitutes
Single yarn breaking strength (cN/tex) ≥16.2 15.8≤ 14.7≤ 14.0≤ 13.2≤ 12.6≤ 12.0≤
<16.2 <15.8 <14.7 <14.0 <13.2 <12.6
Corresponding converted strength ≥295.2 287.9≤ 267.9≤ 255.1≤ 240.5≤ 229.6≤ 218.7≤
<295.2 <287.9 <267.9 <255.1 <240.5 <229.6
Premium(yuan/mt) 350 250 150 0 -150 -250 -600
Coefficient variation of single yarn breaking strength (%) <7.5 7.5≤ 8.0≤ 8.5≤ 9.0< 9.5< 10.0<
<8.0 <8.5 ≤9.0 ≤9.5 ≤10.0 ≤10.5
Premium (yuan/mt) 600 300 150 0 -150 -300 -600
Content of foreign fiber (per 20kg) ≤22 22< 38< 81< 119< >200
≤38 ≤81 ≤119 ≤200
Corresponding converted content of foreign fiber(per 200km) ≤4 4< 7< 15< 22< >37
≤7 ≤15 ≤22 ≤37
Premium (yuan/mt) 1200 600 0 -800 -1600 Not allowed
Note: the numbers marked in red are the prevailing quality of carded 32S.

In the meantime, the validity term of cotton yarn futures warehouse receipts were shortened. The concentrated cancellation time changed from Feb, Jun and Oct to Feb, Apr, Jun, Aug, Oct and Dec. The open interest limit was also lowered.

The revision above will be implemented since contracts for Oct’19.

It is predicted that cotton yarn futures will be more active amid the further improvement of delivery rules, especially traders included which can hedge through cotton yarn futures directly. According to CCFGroup, most cotton yarn mills or traders hedge through ZCE cotton futures. Taking example by mature on-call transactions of cotton futures, the financial characteristics of cotton yarn will improve.

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