Recently, the Zhengzhou Commodity Exchange (ZCE) cotton yarn futures successfully completed its first delivery after rule revisions. A total of 132 lots, or 660 tons of cotton yarn, were delivered in the CY2001 contract. According to relevant ZCE officials, among the 33 standard warehouse receipts delivered, 2 were warehouse receipts, marking the first warehouse delivery of cotton yarn futures and making it the second textile industry product after cotton to achieve warehouse delivery.
It is understood that one of the parties involved in this warehouse delivery is Wuchang Zhongda Yunshang Co., Ltd., a wholly-owned subsidiary of Wuchang Zhongda Group, a Fortune 500 company. Wuchang Zhongda Yunshang, whose main business is textile raw materials and aims to deepen and refine its textile business, leveraged its own advantages in spot and futures trading and collaborated deeply with textile factories. It sold 180 tons of cotton yarn for hedging at a price of 20,650 yuan/ton, closed out 140 tons at 19,400 yuan/ton, and the remaining 40 tons entered the delivery process. The company created the first cotton yarn futures standard warehouse receipts for Hubei Xiaomian Industrial Group Co., Ltd. and Xinjiang Ruyi Textile and Garment Co., Ltd., successfully completing the process of warehousing, warehouse receipt registration, delivery, and goods collection.
Wei Shi Textile Co., Ltd., as one of the cotton yarn futures delivery warehouses, also participated in the delivery of the CY2001 contract and used the futures market to manage risks during the epidemic. At the beginning of the year, the sudden outbreak of the epidemic made the cotton textile market situation grim, and Wei Shi Textile decided to deliver all 100 lots of its cotton yarn holdings. Based on the experience of the previous two deliveries, Wei Shi Textile efficiently registered the warehouse receipts, and the final delivery settlement price was 19,730 yuan/ton, with hedging profits of approximately 1 million yuan.
It is reported that during the trade negotiations in May 2019, based on the analysis of downstream orders and yarn mill inventories, Wei Shi Textile judged that the prices of cotton textiles would fluctuate significantly. To cope with the price fluctuation risks brought about by various uncertainties in the market, Wei Shi Textile decided to use cotton yarn futures for selling hedging. From May to December 2019, Wei Shi Textile successively sold 1,055 lots in the CY2001 contract, with an average selling price of 20,835 yuan/ton. Later, the prices of cotton and cotton yarn fell sharply. Because the profit was locked in advance on the market, the profit in the futures market effectively compensated for the losses in spot sales during the sharp decline in spot prices, recovering more than 600,000 yuan in losses. Among them, 75,600 yuan was earned through a cross-variety arbitrage model of buying cotton and selling cotton yarn.
“Since the listing of cotton yarn futures, Wei Shi Textile has participated in three deliveries, from dozens of tons, to over one hundred tons, to 500 tons in the CY2001 contract, and the income has also increased from tens of thousands to hundreds of thousands of yuan, and now over one million yuan. This delivery represents a breakthrough for Wei Shi Textile in terms of futures trading volume and income, accumulating experience for the company to better utilize cotton yarn futures in production and operation and risk management in the future.” Wei Shi Textile Chairman Li Youyin said that cotton yarn futures, as the most direct hedging product, plays a role that other products cannot replace when cotton yarn production and operation enterprises cope with large fluctuations in the market. The high correlation between cotton and cotton yarn prices and the consideration of both upstream and downstream products can better serve industrial customers. As the market matures, it will also play a leading role in market direction and industry pricing.
It is understood that in order to promote the better functioning of cotton yarn futures, on March 4, 2019, the ZCE officially released the "Amendment to the Relevant Business Rules of Cotton Yarn Futures," optimizing the quality index system for cotton yarn futures benchmark and substitute delivery products and enabling warehouse delivery, providing an institutional basis for achieving the active trading of cotton yarn futures.
From May 15, 2019, cotton yarn futures began to conduct market maker real trading selection competitions to provide initial liquidity for cotton yarn futures trading. Data shows that with the formal implementation of the new contract rules and the market maker system, the trading volume and open interest of cotton yarn futures have gradually increased, achieving initial activity. As of early April this year, the average daily trading volume and open interest of cotton yarn futures reached 8,816 lots and 7,874 lots (one-sided, the same below), respectively, an increase of 97% and 607%, respectively, compared with before the rule revision, and the overall turnover rate reached 1.1. In terms of delivery, a total of four deliveries have occurred since the listing of cotton yarn futures, namely CY1801, CY1810, CY1901, and CY2001, with a cumulative delivery volume of 216 lots, or 1,080 tons.
