The Impact Of Cotton Prices In The Peripheral Market On Domestic Cotton Prices

According to the 1% tariff and CIF port price, the price difference between imported cotton and the national cotton price B index (representing the domestic 3128B grade standard cotton to the factory average price) is relatively low.

　　 1. Cotton price difference between inside and outside

Under the sliding duty rate:

In July 2009 -2010 November, the cotton price difference between inside and outside was maintained for most of the 0-3000 point.

In November 2010 -2011 October, the difference between domestic and foreign cotton prices remained at the negative price level, the lowest -9841 point.

In November 2011, the difference between cotton prices and domestic and foreign cotton prices shifted from negative to positive, and the spread gradually increased, reaching more than 5000 points in mid January 2013, but then began to fall back.

In March 18, 2013, when the minimum reached 2824 points, it gradually recovered to 5500 highs and then dropped. In August 13, 2014, the difference between cotton prices and domestic prices rose to 4629 points, and then dropped to 4074 in August 30, 2014.

1% tariff Tax rate:

The 1% tariff was introduced in September 1, 2014, and the difference between domestic and foreign cotton prices rose from 4693 to 4750, then dropped to 3028. Then it returned to 4126 and then fell again. In mid April 2015, the difference between domestic and foreign cotton prices had reached 1600 points.

　　 2. American cotton Impact on domestic cotton prices

In 2013/14, 2 million 290 thousand tons of US cotton exports and 50.24% of cotton exports to China; in 2014/15, the US cotton plan exported 2 million 330 thousand tons. China's import share of US cotton exports dropped to about 24% due to import quotas. Due to the sharp decline in China's import volume in the most important importing countries and the strong anticipation of India cotton's price cut, the US cotton rose this year with limited space.

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In 2014/15, the supply and demand of global supply and demand exceed the demand, and the output is larger than the demand of 1 million 800 thousand tons, accounting for 7.45% of the annual consumption. This is the fifth consecutive year of continuous global stock raising in the fifth consecutive years. So what is the inventory consumption situation in China and other countries?

Global inventory consumption has risen for 6 consecutive years since 2009/10, and China's inventory consumption ratio almost repeats the same situation. Even with the exception of Chinese factors, the external consumption market outside China (hereinafter referred to as the "external market") is in a high level in the past 10 years in 2014/15, and has increased substantially over the past 10 years. Therefore, the supply and demand situation of the external market in 2014/15 is also grim.

China's cotton imports accounted for more than half of the world's cotton trade in 2011/12 (54.13%). Since then, the share of China's imports in Global trade has decreased by about 10% a year. The weakening of China's demand has put pressure on cotton prices in the peripheral market. How big is this pressure? Let's take a look at the five major sources of cotton imports in China: the US, India, Australia, Uzbek and Brazil.

More than 70% of China's cotton is imported from the five major cotton exporters. Taking 2013/14 as an example, China's imports account for a large proportion of the five largest cotton exporters. In the year of 2014/15, the export expectations of the five major cotton producing countries did not decrease much. Australia's cotton imports decreased to 1 million 590 thousand tons from 3 million 70 thousand tons in 2013/14, because of the strict 1% tariff quota control, the actual import could be far lower than the 1 million 590 thousand tons import expectation. Therefore, from the perspective of Chinese factors, the probability of a big rise in the external market in 2014/15 is low.

Look at the global situation, and talk about China. China's final inventory has been rising since 2011/12, and 2014/15's domestic inventory consumption is 185.6%.

So the question is, is China's extremely high inventory consumption ratio because of the national storage of cotton? If we do not consider the national reserve stock, is the domestic supply and demand really strained in 2014/15? According to the statistics of USDA 2015 February, the annual output of China's 6 million 530 thousand tons of 2014/15 and the import of 1 million 590 thousand tons will be increased by 653+159=812 tons per year. The annual demand and supply gap of China is 7 million 730 thousand tons, and the annual supply and demand gap is 812-773=39 million tons, that is, the domestic surplus reserve is still 390 thousand tons in 2014.