Mr. Wei Gangmin, Chairman of our company, was invited to be interviewed by the Rural Financial Times.
Cotton is an important strategic material and raw material for the cotton textile industry. China is a major cotton producer, consumer, importer, and exporter of cotton textiles and garments. The cotton industry chain involves multiple industries and plays an important role in the national economy.
This year marks the 20th anniversary of cotton futures trading on the Zhengzhou Commodity Exchange (hereinafter referred to as "Zhengzhou Exchange"). After 20 years of development, the scale of the cotton futures market has steadily expanded, its price discovery function has gradually become prominent, and it has gradually become a risk management tool for the main bodies of the cotton industry chain, playing a positive role in serving the real economy and maintaining the stable operation of the national economy.
As a futures market whose fundamental purpose is to serve the real economy, how to better serve all parties in the industry chain and help the high-quality development of the cotton industry is a major issue of concern to the industry.
Deep Integration of Futures and Spot Markets
With the gradual development of cotton futures, its functions of risk avoidance and price discovery are continuously being brought into play. Cotton futures continue to empower the healthy development of the cotton industry and are moving towards the direction of exerting more macroeconomic regulatory functions.
On the basis of ensuring the stable operation of cotton futures, the Zhengzhou Exchange has successively launched cotton yarn futures, cotton options, and an over-the-counter integrated service platform, and has established an international textile product derivatives trading center with a rich variety of tools. The financial "toolbox" available to entities is constantly expanding.
“After the listing of cotton futures, the understanding and application level of cotton enterprises in cotton futures and options have been significantly improved. Currently, cotton basis trading has become the mainstream trading method in the market, and some enterprises are constantly promoting and trying options trading.” Wei Gangmin, chairman of Henan Tongzhou Cotton Industry Co., Ltd., which has been involved in futures market business for many years, introduced to the reporter of Rural Financial Times that the company adheres to the concept of stable development, taking risk management and basis trading as its basic business model, and hedging more than 80% of its spot operations with futures and options.
Tongzhou Cotton, located in Zhengzhou, Henan Province, is an international enterprise group integrating cotton acquisition and processing, cotton textile and garment production, and cotton import and export trade. It is one of the leading cotton trading companies in China, with an annual turnover of more than 450,000 tons of cotton and cotton yarn. As of November 15 last year, the company has used over-the-counter and on-exchange cotton option transactions totaling more than 60,000 tons.
“The development of cotton futures has changed the traditional trading model of the cotton industry. Cotton enterprises use the futures market for hedging and seeking more profit margins, which plays an important role in improving the scale and quality of the industry’s development.” Wang Jianhong, executive vice president and secretary-general of the China Cotton Association, introduced that the cotton futures price currently has high authority in both the trading and management circles, becoming an indispensable price reference for the cotton industry.
As the price discovery function of futures becomes increasingly prominent, the integration of futures and spot markets is also becoming closer. According to statistics from the Cotton Association, the correlation between cotton futures and spot prices from 2004 to 2023 reached 0.96. Currently, in Xinjiang, the main cotton producing area, the "basis trading" model based on the futures market has replaced the traditional "fixed price" cotton trading method and has become the mainstream in the cotton trading market.
At the same time, the frequency of relevant market players using futures and options tools for hedging operations is also constantly increasing. Various trading entities hedge against the risk of absolute price fluctuations through hedging transactions, using basis and futures as trading media to conduct price discovery transactions.
“This year, we will continue to participate deeply in the futures market, actively innovating on the basis of traditional hedging and guiding customers to reasonably use options to carry out options trading,” said Wei Gangmin.
“In recent years, the Zhengzhou Exchange has continued to improve the functions of cotton futures and options, increased efforts to serve industrial customers, and jointly implemented various pilot projects for farmers and agricultural assistance with banks and insurance institutions, achieving positive results in stabilizing cotton farmers’ incomes, helping cotton enterprises control risks, and promoting the integration of cotton industry and finance and high-quality development,” said a relevant person in charge of the Zhengzhou Exchange.
From the perspective of market operation, since its listing on June 1, 2004, cotton futures have generally operated steadily. According to data provided by the Zhengzhou Exchange, as of now, the average daily trading volume of cotton futures is 230,000 lots (equivalent to 1.15 million tons of cotton), and the average daily open interest is 296,000 lots, which is at a relatively high level among the listed futures varieties.
Supporting the Steady Operation of Entities in the Industry Chain
China's cotton market prices are affected by many factors, such as climate, yield, consumption, import and export scale, reserve policies, and the international market situation. Domestic cotton prices are prone to large fluctuations. The resulting large price fluctuations will inevitably affect related entities in the industry chain.
The cotton industry chain involves many links, including cotton farmers, ginning factories, textile factories, and traders. For cotton growers, cotton futures prices accurately reflect market supply and demand conditions and price trends, providing cotton farmers with a scientific basis for planting decisions. Cotton farmers can adjust planting areas and optimize planting structures according to market demand, thereby improving cotton quality and their own income.
For ginning factories, cotton prices are greatly affected by supply and demand fundamentals, and ginning factories often face losses due to price fluctuations. “Through operations in the futures market, while ensuring processing costs, the expected profit level can be guaranteed, and stable income can be achieved. When the futures price reaches the ideal price, hedging is carried out, which is equivalent to locking in pre-sale profits,” said a ginning factory manager in Hutubi City, Xinjiang, who has many years of hedging experience.
For textile factories, by purchasing at the right price point through cotton futures, the cost of raw material procurement can be effectively reduced. For cotton traders, they can use basis trading to sell corresponding positions in the futures market while buying cotton spot, thereby hedging against the risk of price declines.
With the establishment and continuous upgrading of cotton industry bases and cotton futures delivery warehouses in Xinjiang, the healthy development of Xinjiang's cotton industry has been further promoted. Currently, the Zhengzhou Exchange has 12 cotton delivery warehouses in Xinjiang with a total capacity of more than 2.3 million tons. To date, the total number of registered warehouse receipts in Xinjiang's cotton delivery warehouses is 112,700, equivalent to 4.509 million tons of spot goods. By improving the ability of futures to serve cotton enterprises, futures derivatives have taken the lead in the financial development of Xinjiang.
Currently, in Xinjiang, more than 90% of cotton processing enterprises participate in the futures market directly or indirectly, and large textile enterprises are also carrying out hedging and basis trading. The entire industry chain is more deeply integrated into the futures market, and the practice of using futures and options to hedge spot risks is becoming increasingly normalized.
It is worth noting that since 2016, Zhengzhou Commodity Exchange has launched a total of 33 "insurance + futures" projects in major cotton-producing counties in Xinjiang, Shandong, Hunan, Hubei, Hebei, Anhui and other places. The project also innovatively launched extended models such as "farmer cooperatives + over-the-counter options", "insurance + futures + orders", and "insurance + futures + banks" for different cotton-related entities, which not only further enhances the pertinence and accuracy of futures services for cotton-related entities, but also provides a guarantee for promoting stable income increase for cotton farmers and ensuring their peace of mind in planting and production.
As the futures market becomes more mature and perfect, futures will inevitably become an indispensable key factor in the resource allocation of the cotton industry. A relevant person in charge of Zhengzhou Commodity Exchange stated that they will adhere to the principle of steady progress, and continue to enhance the ability of cotton futures to serve national strategies and industrial transformation and upgrading.
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
Tel：86037165836206
Email：tongzhou@tongzhoucotton.com
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