November 15, Hosted by Zhengzhou Commodity Exchange, undertaken by Henan Tongzhou Cotton Industry Co., Ltd., and co-organized by West Futures, the "Stabilizing Enterprises, Securing Farmers, Protecting the Real Economy" Tongzhou Cotton Industrial Base Service Cotton and Cotton Yarn Varieties for Small and Medium-sized Enterprises themed event was held in Zhengzhou. The meeting focused on topics related to cotton and cotton yarn futures serving the development of the spot market. Industry insiders provided detailed explanations of the upstream and downstream situations of the cotton industry chain and how enterprises can make good use of futures tools, which were warmly welcomed by the participants.
Relevant officials from Zhengzhou Commodity Exchange stated that this year marks the 20th anniversary of the listing of cotton futures. The Zhengzhou Commodity Exchange has always attached great importance to the development and maintenance of cotton industry futures derivative tools. Since the listing of cotton futures, the Zhengzhou Commodity Exchange has actively carried out market training, strengthened market supervision, and strived to promote the function of futures tools. In 2017, cotton yarn futures were listed, further enriching the cotton futures derivatives system and continuously promoting the high-quality development of the cotton industry. Over the years, cotton futures have steadily played their market function, maintaining a high price correlation coefficient and high spot market participation and sufficient liquidity.
Chen Hong, an investment consultant at West Securities Wealth Management Department, stated that a series of incremental policies issued since September 24 have effectively boosted market confidence. The healthy development of China's capital market can provide financing channels for enterprises, promote economic development, and provide investment opportunities for individuals and institutions, achieving wealth preservation and appreciation. The vigorous development of the "A-share" market is imperative. The continued growth of public offering funds in the third quarter of this year and the rapid increase in margin trading data both indicate sufficient liquidity in the A-share market. Our view of the current market has shifted from cautious to "relatively optimistic".
Regarding the recent fluctuating pattern of domestic cotton futures around 14,100 yuan/ton, with fluctuations of 200 or even 100 points, Wang Sijia, assistant director of the Tongzhou Cotton Research Institute and cotton researcher, believes that the picking and delivery speed of Xinjiang cotton this year have been very fast. The supply pressure this year has advanced compared to normal years, and the supply pressure has been quickly reflected in the market. The supply pressure in the subsequent market will be reduced. From past experience, after more than half of the processing time, especially around 70%, the supply pressure and hedging pressure have already been reflected in the market, which is why the bottom usually appears in mid-to-late November.
Although the cotton picking and delivery progress is faster this year, the inland inventory and Zhengzhou cotton warehouse receipts have not increased. From the perspective of warehouse receipts and inland inventory, the risk of short selling lies in how to get enterprises to deliver warehouse receipts. From the perspective of basis, the basis is currently at a high level, especially the basis of inland warehouses. In terms of acquisition costs, the current price can allow for profitable sales, but if the price continues to fall, cotton mills will not easily accept losses in the short term.
From the perspective of import impact, due to the lack of quotas, cotton imports have been declining recently, and with the current large amount of national reserves, the possibility of further national reserve purchases next year is low. In addition, due to the inverted import profit margin, cotton yarn imports have remained at a low level, and future imports of cotton yarn are likely to reduce the impact on the domestic market." said Wang Sijia.
"The terminal consumption of cotton will not change significantly in the short term. What really determines the market is channel consumption, that is, speculative replenishment." Wang Sijia said that the current inventory of traders has reached around 50%, laying the foundation for future speculative replenishment. From the perspective of yarn mills with real physical demand, raw material inventory is also at an extremely low level. Yarn mill orders are poor, in the traditional off-season, but inventory is maintained at a healthy level, with low capital occupancy pressure, which is favorable for yarn mill production. The condition of yarn mills is better than in the traditional off-season. However, risks to be aware of include that short-term hedging pressure has not been fully released, Xinjiang production may exceed expectations, and the additional tariffs imposed by Trump's administration may lead to a decline in overall market sentiment.
In the face of potential risks in business operations, Fu Ru Jian, general manager of the spot strategy department of Tongzhou Cotton, introduced to the attendees that enterprises can choose different futures tools to cope with them according to their own needs. He stated that if the near-month contract is at a premium, virtual inventory can be used for replacement, and a strategy of selling near and buying far can be used to optimize inventory costs. In a fluctuating market, option tools can be effectively used to prevent the continuous depreciation of inventory. Based on the reasonable use of cotton and cotton yarn futures, a virtual factory can be established to determine sales and purchase to lock in processing profits, and risk hedging can be carried out through the sale or purchase of futures with similar varieties and quantities.
In order to better serve the cotton industry chain, regarding cotton yarn futures, relevant officials from the Zhengzhou Commodity Exchange stated that the next step will be to optimize the cotton yarn futures delivery layout and expand the cotton yarn delivery area to Guangdong. The Zhengzhou Commodity Exchange also issued an announcement on August 5 this year to add delivery warehouses, expanding the delivery area to Guangdong Foshan, the largest consumption area. This warehouse will start cotton yarn futures delivery business from July 17, 2025. They will continue to carry out the "Stabilizing Enterprises, Securing Farmers, Protecting the Real Economy" industrial development service project, enhance the effectiveness of the futures market in serving the real economy, and improve the breadth and depth of industrial enterprise participation in the futures market; reduce trading costs, the trading margin for cotton yarn 2503 and subsequent contracts will be adjusted to 5%, the daily price limit will be adjusted to 4%, and the trading fee will be adjusted to 1 yuan/lot. Starting from November 1, the market making system for cotton yarn 2503 contracts will be restored. They will promote the activity of cotton yarn futures, systematically promote a package of market cultivation measures, rely on industrial bases, and "three industries" activities to continuously carry out market promotion activities, implement the trader warehouse system, and take multiple measures to promote better improvement in the liquidity and function of cotton yarn futures.
