Dalian Commodity Exchange Accelerates Development Of Yarn Futures
The listing of the yarn futures with great significance is expected to serve the industries effectively.
As DCE submitted the application to the China Securities Regulatory Commission (CSRC) for the establishment of the yarn futures project this February, the emerging of the development of the yarn futures has drawn great attention from the textile industry. Li Zhengqiang, General Manager of DCE, briefed the forum on the 20 years’ development of DCE and the original purpose of developing the yarn futures at DCE. He said that in the construction and development of the futures market, DCE has always kept to the orientation toward serving the real economy, guarding against the market risks, safeguarding the principle of “openness, fairness and equality” in the market, and “equal emphasis” on both developing new products and supporting existing products. As the enterprises of the textile industry are faced with various market risks during the economic transition, DCE has applied for the establishment of the yarn futures project on the basis of thorough research to materialize the principle of serving the real economy by offering the relevant products on the futures market and providing the entity enterprises with risk management instruments. He also said that in the course of development, listing and operation of the products, DCE has always prioritized the contact with the industrial enterprises and the service, support and encouragement for the enterprises to make use of the market, and the same principle will be upheld in the development and listing of the yarn futures.
Zhu Beina, President of the CCTA, said that previously DCE and the CATA had jointly carried out survey and demonstration for the development of the yarn futures, visited enterprises of various sizes in textile distribution, cotton yarn production and weaving through purchase of yarn, and solicited the opinions of relevant national ministries and commissions. It was widely believed in the visits and exchanges that the listing of the yarn futures would be conducive to the development of the textile industry and related enterprises. As the spinning is the foundation for the textile industry, it was hoped that the introducing of the yarn futures could enhance the power of China, an important yarn manufacturer, in speaking in the market, the authoritative yarn price index could be released to serve the enterprises when the time is ripe and function as guidance in the international market, and the relevant textile enterprises could get aid in effectively predicting and judging the market. In the survey, it was suggested that the problems such as the subject matter of the yarn trading and the manners of delivery should be settled in the designing of the contract rules, and it was hoped that the cotton yarn market could maintain a steady running in the future so as to ensure the entity enterprises could successfully achieve the hedging objective and effect.
In his concluding speech, President Wang of the CTIF said that the CCTA, the CATA, and DCE had made a lot of effective efforts in the development of the yarn futures; at the forum the cotton spinning enterprises welcomed and supported the listing of the yarn futures with some enterprises even more eager for the futures to be launched as soon as possible, and the listing of the futures was in line with the current situation of the cotton yarn market. In particular, Wang pointed out that in the futures market, the CTIF was more concerned about the enterprises’ attitude and whether the risks of the futures market could be put under control effectively. The functions of the futures market could not be achieved without speculation but the market must not have too much speculation. In this regard, we were deeply impressed by DCE’s high level and capacity of risk control. He also said that at the forum the attendees provided pertinent opinions and suggestions on the contract rules, and to improve the operation effect after the listing of the contract, it was suggested to organize the knitting and other yarn-dependent enterprises to further the specialized research. He also hoped that DCE and the CTIP could maintain active communication and in-depth cooperation and push forward the relevant work.
Enterprises need the yarn futures under the new situation.
In recent years, under the influence of the factors such as the national policy of cotton purchase and storage, the quota system of imported cotton, the impact of imported yarn, the weak downstream demand, the appreciation of the RMB exchange rate, the rising labor costs, and the financing difficulties of the SMEs, the domestic textile enterprises are in the face of various difficulties in business. According to the sources, in the first half of 2012, the textile enterprises in some regions reported a loss of RMB 2,000 in producing a ton of yarn, 105 key enterprises recorded a drop of 52.1% in profits year on year, and nearly half of the SMEs had to halt production due to too high costs.
According to an enterprise representative from Hubei Province, the implementation of the national policies of purchase and storage in the last two years has resulted in the disagreement of the prices of cotton yarn and cotton, and with the lingering weak demand and the coming of the off-season, the enterprises are faced with high risks with no hedging means. Since March 2011, the spot price of yarn has fallen from the highest RMB 39,200 per ton to RMB 25,400 per ton, a drop of more than 30%, and with the fierce price fluctuations, the enterprises need the yarn futures to manage risks.
Experts from cotton and textile enterprises in Hebei Province, Jiangsu Province, and Fujian Province believe that China is a large yarn producer and consumer in the world. The continuously severe fluctuation of yarn prices in recent two years has made it necessary for yarn to be listed in futures market. They said that their companies both produce and consume cotton yarn and they can lock profits in advance through futures market. If used wisely, such method can help them to achieve zero-inventory operation, thus playing a positive role in solving the capital occupying issue and in speeding up the capital turnover of the enterprises. Meanwhile, the launching of yarn futures will help to expand enterprises’ operational channel.
Providing the market with open and transparent prices to lead production is also one of the common concerns of the attending enterprises. Representatives of the manufacturing and circulation enterprises from Guangdong, Dalian and other provinces said that futures market has two basic functions, namely, price-finding and hedging. Under the current situation of the yarn industry, the yarn futures should first give full play to its price-finding function and form an open, transparent, and leading price. As there exist numerous varieties and different prices in the yarn market, a representative price is badly needed to guide the market operation. And it is hoped that the launching of yarn futures will greatly promote the current operational order of the cotton and textile market.
The representatives also believed that from the industrial level, China has over 4,000 above-scale manufacturing enterprises. However, the output volume of the largest cotton manufacturing enterprises only takes up 2% of the total. And the launching of cotton yarn futures will help to facilitate the structural adjustment and the industrial upgrading of the industry through price information.
It is the common aspiration of the attending representatives to forge a star variety, build an international market pricing center, and better serve the industry development. They all believed that as China’s manufacturing and consuming volume of yarn takes up about 50% of the total in the world, there will be broad development prospects for the yarn futures. Besides, DCE has relevant experience in successfully developing the plastic, coke, and other varieties which have failed or have not been developed in foreign countries. It is hoped that the yarn futures will become a star variety after its launching and thus help to make DCE an international market pricing center.
Yarn futures have basic qualifications for listing.
“During the market research at the earlier stage, we found that the yarn futures have already obtained the basic qualifications for listing. First, the yarn market has a high marketization level with full price competition and no market monopoly; second, there is a sound standard for yarn, which brings great convenience for yarn checking; third, the current yarn futures trading is very smooth without any policy restriction.” said Zhu Beina, Chairman of the CCTA, when introducing the research and investigation of the yarn futures faced with the expectation of enterprises.
An official of the agricultural products division of DCE further introduced the developing and listing requirements of the yarn futures. He said that apart from its high marketization level and its convenience for standardizing, the cotton yarn variety has other advantages in terms of its market constitutions, such as its large market scale, sufficient delivery amount, frequent price fluctuation, high regional correlation, convenience for storage and transportation, and clear trading flow. Therefore, its listing is of great feasibility. In recent years, DCE has strengthened its efforts on screening relevant variety system in the fields of “agriculture, farmer, and rural area”. It has chosen the yarn variety as its key strategic variety for researching and developing and set up a yarn futures research group to promote relevant work in the latter half of 2012. Since the beginning of this year, DCE has, cooperated with the CTIF, gone deep in the cotton and textile enterprises of various provinces and cities to do study and research and participated the industrial conference organized by the CTIF to exchange views on developing yarn futures with spot enterprises. At present, based on the earlier research, DCE has initially formed the contract and rule design plan for the yarn futures and will submit it to the current symposium for discussion.
At the symposium, the attending representatives discussed the existing plan and put forward advices and suggestions on contract rules, delivery quality, and improving inspection method. According to the current plan, the DCE yarn futures contract will initially make the carded 32 yarn and the carded 40 yarn as the trading objects and expand the delivery scope through the premium and discount. Given the actual situation and the developing trend of the spot market, DCE will establish the futures delivery quality standard based on the international standards. And considering the manufacturing characteristics of the spot enterprises, DCE will set up 12 contract months for the convenience of spot enterprises’ operation.
“Hope that industrial enterprises can come up with more advices and suggestions. Contract rule design is only the first step of a variety’s listing in the market. The major indicator to test a contract is whether enterprises can accept and effectively use the contract after the variety’s launching. We hope to forge an everlasting variety and we will have long-term cooperation with the industrial circle afterwards. Next, having fully absorbed all advices and suggestions, DCE will further its research and demonstration in the cotton and textile industry and continue to improve the contract rule, so as to make the yarn variety to be listed as soon as possible and better serve the industry.” said Li Zhengqiang at the end of the symposium.