The sharp decline in cotton prices that began in mid-November has continued, with the drop being even more severe than the previous rapid rise. On the 23rd, the cotton price index fell another 1.7%, closing at 27,881 yuan per ton. Since November 12, the index has fallen for eight consecutive trading days, with a total decline exceeding 10.9%.
This dramatic fall has hit middlemen who tried to profit from the market, causing their wealth to shrink significantly. On the 22nd, Qin Qin Zhanhua of Binzhou Zhanhua expressed his anxiety and pain, feeling the weight of the losses.
As cotton prices plummet, the "focus" of the crisis is now on small-scale processors like Hua Qinxing, who owns a small lint processing plant and still holds 30 tons of lint. His worries stem from the ongoing price collapse.
On Tuesday, the cotton price index dropped by 474 yuan/ton, closing at 28,355 yuan/ton—a nearly 1.7% decrease. This marks the eighth straight day of declines since November 11, with a cumulative drop of over 3,421 yuan/ton.
For Hua Qinxing, this directly affects the purchase price of raw cotton and the lint price, which are crucial to his business. The purchase price determines his production costs, while the lint price directly impacts his income.
According to data from Zhuo Chuang Information on the 22nd, the current purchase price of cottonseed in Shandong is 5.8 yuan/kg, down nearly 20% from the annual high of 7.2 yuan/kg. Meanwhile, the ex-factory price of lint is only 26,000 yuan/ton, according to Hua Qinxing.
Not long ago, the price of lint soared to an all-time high of 31,500 yuan/ton. At that time, “doing clothes was not as profitable as cotton,†as the gains from rising lint prices outperformed many other industries affected by currency appreciation and rising labor costs.
Hua Qinxing was one of those who believed in this trend. On October 27, he decided to stop selling lint, hoping for further price increases. At that time, the local cotton purchase price in Zhanhua had surged to around 6.4 yuan/kg. “The risk of buying seed cotton at 6.4 yuan/kg was already high,†Hua recalled, but during the price surge, many traders were still rushing to buy cotton, while some lint factories were also purchasing seed cotton instead of selling lint.
At the time, the price of cotton was rising rapidly, and Hua believed it would continue to climb. He said he was watching the high market and had bought cotton at the bottom.
Indeed, on the day before the 27th, data from Zhuo Chuang Information showed that the purchase price of cotton in major producing areas like Shandong, Xinjiang, Hebei, and Anhui reached 6 yuan/kg. That same day, the cotton price index closed at 26,205 yuan/ton.
Since September 2, the cotton price index had been rising for 30 consecutive trading days, reaching a record high of 31,302 yuan/ton after starting at 18,012 yuan/ton. The increase was over 13,290 yuan/ton, or more than 74%.
The sharp drop in cotton production due to weather conditions was considered the main reason behind the price surge. On September 28, during an interview in Binzhou, Zhanhua, the “National Top 100 Cotton Producers†mentioned that due to continuous autumn rains, local cotton yields had exceeded 50%.
On the same date, Xiong Qinwang, a partner of Hua Qinxing, told the newspaper that due to rising cotton prices, the lint factory faced increased cash costs and a shortage of working capital. They had to rely on IOUs to pay local farmers and were even considering borrowing 2 million yuan from the bank to survive.
“There are many people who lost millions,†Xiong said. At the time, with a local purchase price of 5.2 yuan/kg and an ex-factory lint price of around 23,000 yuan/ton, they could still make a small profit. But these profits have vanished since the price collapse began on November 12.
By November 22, Hua Qinxing admitted that the 30 tons of lint he held had failed to be sold in time, leading to a loss of value. With the lint price dropping from 31,500 yuan/ton to 26,000 yuan/ton, the value of his inventory fell by 165,000 yuan. He also noted that many local cotton farmers suffered heavy losses, with “many people losing millions.â€
Zhao Hong, a cotton analyst at Zhuo Chuang Information Technology Co., Ltd., said that while the risks for traders are increasing, the cotton industry is currently in a state of desolation. “Whether it's enterprises or traders, everyone is watching closely.â€
Zhao also pointed out that recent macroeconomic policies aimed at curbing inflation were key factors pushing the price lower. Measures such as “strengthening cotton shipments in Xinjiang†and “banning unlicensed acquisitions and unauthorized processing†were introduced by the State Council to stabilize prices. Additionally, the impact of reduced liquidity from two consecutive increases in the deposit reserve ratio within nine days was also becoming apparent.
However, some analysts believe that the overall cotton market remains tight, and prices may rebound later this year. “I don’t have to worry about selling the remaining lint,†Hua said happily. Although he couldn’t predict how long the current adjustments would last, he felt it was still worth taking a loss now.
Perhaps, in his view, the ups and downs of cotton prices—marked by sudden swings—have turned cotton operations into a gamble, full of uncertainty and risk.
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