Chairman's Interview (2015): My View on the Cotton Situation
Editor's Note: The 2014/15 fiscal year marked the first year of implementation of Xinjiang's target price subsidy pilot policy. As cotton market prices gradually returned to market levels, many cotton-related enterprises encountered operational difficulties or uncertainty during the transition to a new normal. Businesses urgently sought new operational space or directions for transformation. However, some companies still managed to maintain stable operations in a relatively challenging market environment. What were their strategies and experiences? During the 2015 China International Cotton Conference, China Cotton Information Network conducted an interview with Mr. Wei Gangmin, Chairman of Henan Tongzhou.
China Cotton Information Network 2014 was a rather severe year for inland cotton-related enterprises in China, with sluggish consumption and fluctuating prices resulting in losses for most businesses. What is the secret to Tongzhou Cotton's stable operation and sustainable development?
Wei Gangmin Tongzhou is a cotton enterprise primarily engaged in trade. Our operational approach involves sales-driven procurement, combining spot and futures trading, and integrating domestic and international markets. At the same time, we are also expanding and improving our business across the cotton industry chain, from acquisition and processing to spinning and apparel manufacturing. Our goal is to move towards specialization, internationalization, and industrialization.
First, the company's stable and sustainable development in 2014 benefited from a correct understanding of the market situation. Judgment of cotton price trends determines how the company makes effective investments. For example, because the price of imported cotton was lower than that of domestically produced cotton, the company adopted a strategy of buying imported cotton and selling domestic cotton to make arbitrage profits, thus achieving relatively stable earnings; moreover, the domestic cotton harvest that year was small, and the existing stock was sold at relatively favorable prices; in addition, our forward sales hedging began in late May last year, and this futures combination effectively hedged against price fluctuation risks.
Second, pursuing industrialization, specialization, and internationalization. In operations, whether it's cotton textile trade or apparel processing, Tongzhou emphasizes the quality of raw materials and the integrity of the industrial chain, considers the branding of end products, and takes a more professional and international perspective. For example, Tongzhou has been committed to expanding the cotton industry chain, from processing to spinning, and recently we also invested in a garment factory. This is because the added value increases further down the industry chain, while the risks associated with raw materials decrease, resulting in more tolerance to raw material price fluctuations. To enhance the competitiveness of the enterprise, a branded approach to apparel processing is the future trend.
Another aspect is that Tongzhou prioritizes capital preservation and financial management. Regarding capital preservation and risk mitigation, we transformed the factory's industrial land into commercial land and used land sales for land preservation and appreciation. The results of this experiment have been positive so far. Then there's financial investment. I believe that the highest level of business management is financial management. The leverage in the stock and futures markets is quite high, and those who aim for high-end management must seize these two aspects. Businesses need to take a broader perspective and grasp the relationship between the macroeconomic environment, the financial market, and commodity trading. And it's important to remember that profit is the goal of business operations, and investment return should be valued.
China Cotton Information Network With the rapid rise of e-commerce, what are Tongzhou's considerations regarding "Internet +"
Wei Gangmin We are now considering how to promote online sales, but cotton, as a bulk commodity, is similar to an artisan product; offline inspection of goods is still very important for our industry. I believe online and offline businesses have their own suitable trading varieties and channels, but this does not mean that the internet cannot be used in cotton trade. Tongzhou has not yet made a major breakthrough in "Internet + cotton." However, using the internet for trade is a major trend.
China Cotton Information Network From a business operator's perspective, what is your outlook on the future development of China's cotton textile industry?
Wei Gangmin From the perspective of textile enterprise profitability, the 2014/15 fiscal year was actually better than the 2013/14 fiscal year. This is because the direct subsidy policy's market-oriented approach brought some benefits to the raw material market, with raw material prices declining and the price difference between international and domestic raw materials narrowing.
However, from a medium-to-long-term perspective, the Chinese textile industry faces significant competitive pressure from Southeast Asian textile industries. This is primarily manifested in the fact that core competitiveness in the raw material market is weaker than that of countries such as India, Pakistan, Turkey, Vietnam, and Indonesia. These countries have significant raw material advantages, lower labor costs, tax incentives, high investment returns, and rapidly increasing competitiveness. China has a huge price difference in raw material costs compared to these countries, approximately 4500 yuan/ton this year, as low as 3700-3800 yuan/ton at times, and as high as 5000 yuan/ton. This price difference in raw materials cannot be offset by improving the quality of China's labor force, the level of manufacturing and product quality, or the cost-performance ratio of products.
The main consumer of Chinese textiles is the international market, and textiles require large-scale exports. However, from a consumption perspective, China's overall import and export trade is declining, and the competitiveness of cotton textiles is declining, especially in the spinning sector.
I believe that China's textile industry needs to focus more on improving product value-added, especially for end products - apparel. In recent years, China's competitiveness in apparel has been steadily increasing; some European clothing brands are now manufactured in China. Only by continuously promoting value-added increases can we survive.
China Cotton Information Network What is your outlook on the economic situation in 2015 and its impact on the cotton market?
Wei Gangmin Economically, there's a downward trend in the macroeconomy, GDP, exports, and consumption; the cotton textile industry, after three years of reserve accumulation, is also in a downward trend.
From a global cotton perspective, while international cotton prices are showing an upward trend, they are not extremely high, with spot prices around 100 cents and futures prices around 95 cents; global cotton production will decrease, but not by much. Macroeconomically, although there are problems in the agricultural products sector, the overall outlook is still favorable, and survival is still possible.
China Cotton Information Network How do you understand the long-term mechanism and timely and appropriate release of reserve cotton?
Wei Gangmin The premise for the release of reserve cotton is that it does not depress the market. In fact, the essential role of the reserve cotton release price is to adjust several relationships: one is the relationship with farmers, the second is the relationship with direct subsidies, and the third is the relationship with enterprises. The setting of the reserve cotton release price will consider multiple factors, including the financial acceptance capacity of cotton farmers, central government finances, and processing plants, as well as the relationship between domestic and international market prices. The officials in charge of cotton industry regulation in our country are mostly experts, and the plans they design are very reasonable.
Currently, the timing, price, and quantity of reserve cotton release are likely the most significant factors affecting the market.
China Cotton Information Network Do you think the release of reserve cotton is beneficial or detrimental to the market?
Wei Gangmin It's beneficial to textile enterprises; the release of reserve cotton increases the options available to enterprises for raw materials.
This is bearish news for cotton processing companies with existing cotton reserves. Although market prices have risen in the past, this only occurs when supply is short. Market cotton prices are only likely to rise with the release of reserve cotton under conditions of increasing demand, capacity expansion, increased liquidity in the financial environment, and rising prices. However, these conditions are not present this year.
China Cotton Information Network What advice can you give companies regarding their operations in the next fiscal year?
Wei Gangmin: I believe that market analysis is paramount, and we should also look for hedging opportunities in the futures market. Personally, I believe the basic judgment for the new fiscal year market is "a fall without depth, a rise without height." Under these circumstances, each company needs to combine its own characteristics, utilize its strengths, and achieve ultimate profitability.
While next year may not be a good year for business growth, it should be a relatively stable one. Although the investment returns may be limited in the new fiscal year's business environment, the relative stability of the market also reduces risk.
Leaders from Xiamen C&D Group visited Tongzhou for investigation and guidance
On March 3, Wang Yongqing, Vice President of Xiamen CNOOC Group, visited Tongzhou Group for investigation and guidance. Wei Gangmin, Chairman of our company; Huang Hongyu, President; Li Tao, Vice President; and Zhang Zhiyan, Director of the General Office, met with and participated in a symposium.
Tongzhou Cotton Market Brief, Week 1 of March 2025
1) This week's National People's Congress and the Chinese People's Political Consultative Conference (NPC & CPPCC) in China boosted market expectations for steady growth. In February, the Purchasing Managers' Index (PMI) for manufacturing stood at 50.2%, up 1.1 percentage points from the previous month, indicating a significant improvement in the manufacturing sector.
In 2024, China's dyeing industry saw rapid export growth to ASEAN and RCEP member countries, exceeding the overall export growth rate. However, this growth was accompanied by a decline in prices. From January to December, China's exports of eight major dyeing products to ASEAN totaled 7.908 billion meters, a year-on-year increase of 12.14%, 4.61 percentage points higher than the overall export growth rate, accounting for 23.58% of total exports. The average export price was US\$1.19 per meter, a year-on-year decrease of 2.75%, 0.64 percentage points lower than the overall decline. Exports to RCEP member countries totaled 8.431 billion meters, a year-on-year increase of 11.35%, 3.82 percentage points higher than the overall export growth rate. The average export price was US\$1.17 per meter, a year-on-year decrease of 2.79%, 0.60 percentage points lower than the overall decline.
On February 28, Mr. Huang Hongyu, President of our company, was invited to attend the 2025 Zhangjiagang Cotton Industry Development Conference and, as a guest speaker at the "Xiangshan Roundtable," shared his views on the cotton market and trading opportunities.
Henan Tongzhou Cotton Industry Co., Ltd.
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Henan Tongzhou Cotton Industry Co., Ltd.
Address: 10th Floor, Henan Nongxin Building, No. 19 Commercial Outer Ring Road, Zhengdong New District,Zhengzhou, China
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Email：tongzhou@tongzhoucotton.com
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