President Huang Hongyu: Relatively benign domestic situation, risks lie abroad
On March 30, 2023, at the fourth session of the eighth council meeting of the China Cotton Association, Huang Hongyu, president of Henan Tongzhou Cotton Industry Co., Ltd., analyzed the domestic and international macroeconomic situation and the new changes in Xinjiang cotton pricing, and pointed out the risks that should be mainly focused on in the future market.
He said that commodity prices and macroeconomic cyclical economic development are strongly correlated. For China, the future is promising. Qualitatively speaking, it is in a process of upward recovery after the epidemic. Three years of the epidemic have brought the economy to its bottom, and now production, life, and trade are gradually recovering. Quantitatively speaking, the Two Sessions set a target of 5% for 2023, which is a relatively pragmatic indicator. In terms of expanding consumption, the focus is on meeting "three needs": the first is to meet consumption demand supported by income; the second is investment demand with reasonable returns; and the third is financial demand constrained by principal and debt. From these three perspectives, the country does not plan to adopt a rapid and strong stimulus policy.
Therefore, qualitatively speaking, the Chinese economy is improving, but in terms of magnitude, we must face reality and look at the size and sustainability of the upward driving force. From a foreign perspective, it is the opposite of China, adjusting downward from an overheated economy, and having to resort to aggressive interest rate hikes to curb demand and cool the economy. In this cycle of economic contraction and monetary tightening, the unknown risks of events such as the collapse of banks like Silicon Valley Bank and UBS are relatively high, so all overvalued commodities have a risk of falling.
From the perspective of the industry, the domestic and international situations are also different. Domestically, it is still relatively benign, with low inventory and relatively benign upstream and downstream transmission, although there is some lag in the fabric sector. But it is different abroad. For example, the inventory of US distributors is still declining relatively slowly from a historical high, and the absolute value is still very high. Coupled with high interest rates and inflation, consumer spending is declining. What's worse is that China's export orders are particularly poor. One reason is that foreign absolute consumer spending is declining; the second is decoupling from China and suppressing domestic manufacturing. In terms of the supply chain, we are facing the restructuring of the supply chain. Enterprises in the industry should be fully prepared mentally and should not harbor any illusions that orders will return, the possibility is very small. At the same time, because Xinjiang now has many advantages, and the cotton industry has also been guided to Xinjiang, so the survival environment for inland textile enterprises will become increasingly difficult.
Under the current environment, the original pricing model for Xinjiang cotton may need to change. In the past, Xinjiang cotton was exported through textiles and garments, and was an international product. However, if Xinjiang cotton circulates domestically, then Xinjiang cotton is a regional commodity, and the price difference between domestic and international markets cannot return to historical levels. The price of Xinjiang cotton will depend on domestic supply and demand, and then calculated. The environment is changing, and the thinking patterns, ways of thinking, and commodity pricing analysis must also change.
Overall, the market in 2023 may not see a large upward or downward trend, and the probability of small-range fluctuations is high. In terms of cotton valuation, the domestic futures price of 14,000 yuan/ton has entered the undervalued zone. Coupled with the improvement of the domestic economic environment, a significant further decline is unrealistic, and a decline may be a buying opportunity. However, a significant increase at present is also subject to various constraints. Recovery takes time, and the changes in cotton supply and consumption in the new year are still uncertain. The main risks do not come from domestic but from abroad. As long as high inflation persists and interest rate hikes continue, risks remain, and we need to pay close attention and make necessary preparations for risk management.
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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