Analysis Of The Current Situation Of Imported Textile Raw Material Market

"China" held in Hangzhou in the middle of this year spin "Raw Material Summit Forum" and "Imported Cotton Yarn Forum". The number of participants was nearly 1500. The crowded meeting place made me feel very uneasy, just like in the retail investor hall of the securities company in those days, when you saw the bustling retail investors gathered together, you would be alert to smell the signal that the market was about to peak. It was the suppliers from Pakistan and India who participated in the conference. They were first surprised and then ecstatic. They thought that the participants were all actual buyers, but what they didn't know was that there were basically two types of people coming to the meeting: one was new entrants to import cotton yarn and cotton cloth, some were small business owners who sold factories and turned to trade, and the other was those who suffered serious losses after purchasing at a high price in the early stage and sought to solve the problem.

In the past three years, due to the price advantage, the import of cotton yarn and grey cloth has been paid more and more attention. The once-in-a-century market in 2010 made the merchants of cotton and cotton yarn business "earn money for ten years in one year". This "earning effect" has also attracted more and more OTC funds. Enterprises, investment institutions and individuals that had nothing to do with the textile industry have also joined the overseas procurement force of foreign gauze and foreign cloth. Our company's supplier, a famous textile enterprise in Karachi, Pakistan, received five groups of purchasing groups from mainland China in one day in May. The Pakistani friend was not happy because of this. On the contrary, he said to me anxiously that a large amount of procurement demand from China in the short term has made some local small textile enterprises extremely excited. Through borrowing, a large number of equipment and manpower have been increased, and the workers of local textile factories have hardly been trained to work, This has virtually pushed up the cost of raw materials, energy and labor in Pakistan and India, pushed up the factory price of local textile products, and reduced the quality of products. In the short term, it seems that the enthusiasm of Chinese buyers is rising, but once these short-term demand bubbles disappear, there will be disastrous consequences.

As the international procurement of bulk commodities involves transnational trading methods, pricing mechanisms, settlement channels and quality disputes, which are completely different from domestic transactions, the risks faced by imported textile raw materials will almost destroy the confidence of new entrants. Ships that can navigate in rivers may not be able to cope with the situation in the sea as usual. There are many cases of stranding on rocks. If I tell you that there is an enterprise in Changzhou, Jiangsu Province, which is still struggling to digest the inventory of cotton yarn imported at high prices in the second half of 2010, how do you feel?

Cotton and cotton yarn are more and more like speculative commodities and are separated from the properties of production materials. Its price fluctuation is also increasingly affected by the capital side and away from the fundamentals of production and consumption demand. There was a time when the price of imported cotton yarn grey cloth was even higher than the domestic price according to the quotation of the middleman. However, since the end consumer market has not started, a large number of raw materials and finished products are overstocked in each link of the supply chain.

The price change of any bulk commodity that is the target of speculation often goes through three stages. In the first stage Price In the second stage, it exceeded the price of its own general commodity and became the object of hoarding inventory in the production field. In the third stage, it became the object of investment funds. In the third stage, it was the bulk commodity as a financial derivative product. For example, banks released a large number of credit lines, and trading companies engaged in the business of issuing letters of credit without doing physical transactions. This year's cotton and cotton yarn have become financial derivatives. In a highly free money and capital market, if a certain commodity is gradually capitalized and monetized, it may replace the currency. (Cotton and cotton yarn become financial derivatives.) This behavior will be punished by the currency. The currency will make the commodity completely lose its commercial and financial credit until bankruptcy.

Historically, there are many examples of economic crises caused by the crazy speculation of short-term funds. Now, the foam seems to have spread to China's textile raw material field. The collapse of PTA raw material market in the past few years was due to the fact that Zhejiang merchants used the bank's L/C limit to import PTA (raw material for polyester production), sold it at a lower price than the market price after customs clearance at Chinese ports, and ran away after a large amount of cash, which finally led to the collapse of the entire market. We have to guard against mistakes.

At the Beijing International Yarn Fair in the spring of 2012, we conducted a field survey: 2/3 of the visitors were not terminal buyers in the textile industry, but trading companies and intermediaries. The current market situation is that no matter whether they understand the operation and risk of imported cotton yarn or not, the purchasers have all rushed into this unknown market. There was a company that had been doing well in the domestic yarn trade. Seeing others making money by importing yarn in the past two years, it was on the spur of the moment and rushed to the battle. It also rented an office. It officially opened on May 1. It planned to invest about 20 million yuan to apply for import and export rights in a hurry and opened a foreign exchange account number. However, the letter of credit issued to Indian suppliers on June 14 had not even seen the sample of a large cotton yarn until August 1. There are too many examples like this. A large number of real cases show that it is impossible to try to enter a new market without two to three years of practice, especially when it involves a series of links such as international trade settlement, quality definition, price mechanism, currency exchange rate, legal environment and risk control, supplier evaluation and assessment.

A long time ago, there was an old movie "Crow and Sparrow", in which the whole people hyped cotton yarn, which is still fresh in our memory. How many speculators who speculated on cotton yarn on the beach of Shanghai before liberation could escape the disaster? Even now, the seniors in Hong Kong's textile industry still regard cotton and cotton yarn as "white tigers", and a slight carelessness in operation will lead to a situation of "riding a tiger".

Cotton Cotton yarn The long-term trend of such commodities is bullish. The question is, how long can you live in this market?

About the author: Wu Faxin, a senior expert in the textile industry and international trade, is the general manager of Greater China of Hong Kong Aisha Import and Export Trade Co., Ltd. and Hong Kong JKN International Group. He used to be market analyst of overseas commodity futures and financial derivatives of Shenzhen Financial Futures Company, director of overseas market, manager of fabric department of Hong Kong Qihuan Trade Co., Ltd. (a large Hong Kong funded export foreign firm), executive director of China Cotton Group (Hong Kong) Co., Ltd. (an importer of textile raw materials), and director of China Department.