Recently, the market has shown signs of stopping its decline and stabilizing, and corporate panic has been temporarily alleviated. During the survey, the most mentioned word among the interviewed companies was consumption, which shows that consumption is crucial to the future trend of cotton prices.
The company we visited today also focuses on foreign trade exports. Due to the Xinjiang cotton ban, the company now uses all foreign cotton. It is understood that 30% of this company’s products are exported to the United States, 30% to Europe, and 30% to Japan. In response to U.S. sanctions, companies have long begun building factories abroad. Currently, domestic production capacity and foreign production capacity each account for 50%.
The person in charge of the purchasing department of the company said that this year’s market situation is even worse than the financial crisis in 2008. Cotton prices have also continued to fall. Overseas orders were still there in 2008, but now orders continue to decrease, so production capacity can only be reduced to reduce inventory. To reduce expenses, during the decline of raw materials and products, the larger the inventory, the greater the losses.
In the process of falling cotton prices, how much impact do raw materials and inventory size have on enterprises? The example of another company is illustrative. This company operates very steadily and basically achieves a break-even balance. The reason is that it makes corresponding production plans based on its own capital level and always puts risk control first. According to this business philosophy, the company’s raw material and product inventories are always kept at a low level, and production is determined by sales without exhausting inventory. Over the years, no matter how the industry changes, the company has always maintained stable operations. When the market improves and the prices of raw materials and products rise, companies make rigid purchases, control inventory, and make immediate settlements according to market conditions. Naturally, profits are not high, while companies with large inventories make a lot of money. When the market turns bad, because the inventory is small, the company’s risks are controllable, while the losses of companies with large inventories increase and the risks increase. To sum up, companies that rely on market trends to make money will ultimately be unable to achieve long-term stable operations. Because it is impossible for a company to bet on the market every time, just one mistake may damage its vitality.
During this investigation, although Europe and Japan have not explicitly banned the import of Xinjiang cotton products, customers from these countries have verbally told domestic manufacturers to ban the use of Xinjiang cotton. Of course, the implementation process is not strict for the time being. What companies are worried about is that once Europe and Japan tighten their policies in the future, it will be very detrimental to Xinjiang cotton. The markets of the United States, the European Union, Japan and South Korea account for the vast majority of my country’s textile and clothing products exports, and have a great impact on my country’s cotton spinning enterprises. If these markets are blocked and the domestic consumer market cannot take over, it will be difficult for countries in the Middle East, Africa, and the “One Belt and One Road” to replace these markets. After all, there is still a big gap between the economic strength and consumption power of these countries and the above countries.
Therefore, for enterprises, the risks in the cotton market have not yet been eliminated, and they still face many challenges. They need to take practical and effective measures to deal with them, act within their capabilities, and cannot continue to take risks and gamble on the future market.
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