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Reasons For Cotton Bag Price Raise

Perhaps you have noticed that cotton bags from different eco bag suppliers, except cotton bags, other types of cotton products have also increased rapidly. Why are cotton products raised crazy?

Cotton price raise

On October 11, the China Cotton Price Index (CC Index) was 21,699 yuan/ton, up 12 yuan/ton from the previous trading day and up 3,423 yuan/ton from a month ago.

Cotton price trends

Indian cotton production was reduced due to insect damage, Xinjiang cotton production dropped due to high-temperature weather, and the recent rain and snow weather caused cotton-picking progress to be hampered. After the weather improved, cotton picking prices, loading and unloading fees, and transportation costs are increasing, even though the cotton purchase price has been adjusted back, cotton prices are still higher.

In addition, Southeast Asia textile start rate with the Vietnam epidemic control or further reduced, coupled with the shortage of coal in India, India’s power restriction effect has just begun, textile orders will continue to follow back to China, the current domestic textile start rate by the impact of dual control to reduce the order back to the background, the price of cotton products may continue to rise.

Electricity Restriction Policy

Soaring price of coal

Coal is very important to China’s power map, although hydropower, wind power, and other new energy after years of development, coal power still occupy “half of the mountain”.

According to the China Electricity Council, by the end of 2020, China’s full-caliber installed power generation capacity of 2.2 billion kilowatts, of which, full-caliber coal power installed capacity of 1.08 billion kilowatts, accounting for 49.1% of the total installed capacity.

However, compared to wind power, photovoltaic, and other new energy with intermittent, random, volatile characteristics, has always been a stable supply of coal power to play the role of the bottom to protect supply.

However, coal power this “needle in the sea” is also unstable, because of the soaring price of coal so that thermal power plants “can not afford to burn”.

The China Electricity Purchase Price Index (CECI) shows that as of Sept. 23, the FOB composite price of 5,500 calorie coal was $1,210.44 per ton, a value that has been the high point of the past decade. In March, the FOB composite price for the same size of coal was still hovering at more than $500. In half a year, it has more than doubled.

Although coal prices are soaring, the gap between supply and demand still exists. China’s National Development and Reform Commission predicts that this winter, influenced by factors such as steady economic growth and rapid increase in electricity consumption for heating, the nation’s highest electricity load will gradually climb and may even exceed this summer’s and winter 2020’s peaks.

A research report released by IFC Securities estimates that China’s total coal demand for the five months from September 2021 to February 2022 amounts to 1.848 billion tons, yet even if the highest production from 2015 to 2020 is measured, the five-month coal supply gap could be as high as 222 million tons, a 12% shortfall.

Australian coal

China still imposes a ban on Australian coal imports despite the huge coal shortage. Some voices criticized that the “Australian coal ban” is to lift a stone to smash their own feet.

The “Australian coal ban” is undoubtedly not good news for China’s coal supply. Australia’s coal exports to China in 2020 in 35-40 million tons of coal, after last November, energy consulting firm Wood Mackenzie said exports to China “almost to zero”.

Meanwhile, China has increased its coal imports from Indonesia and Russia in an attempt to fill the gap for Australian coal.

Combining data from China’s General Administration of Customs and WIND, China’s power coal imports from Indonesia rose about 11.7% in the first seven months of the year, while imports from Russia rose about 3.7% as a share.

Despite this, China imported 140 million tons of power coal in the first seven months, down 7.9% year-on-year.

It is possible that this situation stems from the fact that the price of imported coal is also soaring. With the global economic recovery, the implementation of aggressive monetary policies in many countries such as the U.S., coupled with the exponential rise in shipping freight rates, a combination of reasons, the price of imported standard coal (7,000 calories) also exceeded the historical high of 1,200 yuan per ton, up more than 160% compared to the same period last year.

With such a magnitude of price increase, there is no price advantage for imported coal. Moreover, in front of China’s huge demand, the proportion of imported coal is extremely small. 2020 China’s power coal imports account for only 3% of domestic consumption.

Losses of coal power plants

According to normal economic logic, the high demand for electricity will prompt power plants to increase the amount of power generation, coal as a raw material for power generation will also rise, the enthusiasm of both coal production and coal import will increase, thus reducing the price of coal, increasing the amount of power generation, and then promoting lower electricity prices, which is the price adjustment mechanism.

But China’s power industry is in a rather peculiar situation – the demand for electricity is outstripping the supply, but thermal power plants are losing money on a large scale.

The reason is not difficult to understand, China’s power market still has a legacy of planned economy, despite years of continuous liberalization, but the price mechanism is still a semi-market state.

So, coal prices can be in accordance with the market supply and demand free rise, and power generation enterprises are limited by the extent of price increases, when the price of coal to a certain extent, reach just the break-even point for power generation enterprises if coal prices continue to rise, but the price of electricity can not follow the rise, then the power plant will be “the more power generation, the more losses”.

And this break-even point has come a few months ago. CEC’s report shows that in June, some large power generation groups to the field unit price of standard coal rose 50.5% year-on-year, coal and electricity companies lost of more than 70%. Thermal power plants “send a loss of one degree”, power generation will barely.

When the price of coal exceeds 800 yuan per ton, the cost of coal for coal power companies is about 0.378 yuan per unit of electricity, much higher than the national average feed-in tariff of 0.35 yuan for coal power, plus other variable costs, coal power companies to lose 3 cents for every 1 degree of electricity.

And the current price of coal has far exceeded this value.

In other words, the root cause of the “electricity shortage” does not lie in coal, but in the surge in demand for electricity, but can not conduct the market signal through the price of electricity, effectively regulating supply and demand.

Government Policy

The National Development and Reform Commission issued a “barometer of the completion of the first half of 2021 double control target of energy consumption in each region”, from the energy intensity, the first half of this year, Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi, Jiangsu 9 provinces (regions) energy intensity year-on-year rather than falling, 10 provinces energy intensity reduction rate did not meet the progress requirements, the national energy-saving situation is very serious.

To this end, the intensity of energy consumption control around the country is also increasing, and power restrictions and orderly power policies are being introduced one after another. This storm of power restrictions and production shutdowns swept through at least 10 provinces, including Jiangsu, Zhejiang, Shandong, Guangxi, Yunnan, etc.

Dual control of energy consumption policy of the Chinese government, which has a certain impact on the Perhaps you have noticed that the recent “dual control of energy consumption” policy of the Chinese government, which has a certain impact on the production capacity of some manufacturers companies, and the delivery of orders in some industries has to be delayed.
In addition, the China Ministry of Ecology and Environment has issued the draft of “2021-2022 Autumn and Winter Action Plan for Air pollution Management” in September. During the autumn and winter this year (from 1st Oct 2021 to 31st March 2022), the production capacity in some industries may be further Restricted.

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