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Soft cotton prices only temporary

China cotton prices have been falling of late, but analysts are expecting supply-demand factors will drive quotes upward by 2H11.

The earthquake that struck Japan may have cooled cotton spot and future prices in international and China markets, but quotes are not likely to soften through the rest of the year.

Soft cotton prices only temporary

After peaking at 31,098 yuan ($4,745) per ton on March 14, domestic spot prices for 328-grade cotton fell nearly 2 percent the following week. Quotes have been sliding since. Compared with March 14 rates, April 2 spot prices are down 4 percent to 29,852 yuan ($4,555) per ton.

But short cotton supply is expected to pull prices back up again by the second half. Zhang Wei, analyst at Guotai Junan Securities, said demand continues to outpace supply, even after new cotton was released in September 2010.

Zhang said, however, that the immediate price drop shows cotton quotes were just artificially high. Even so, while prices are likely to continue falling to mid-2011, they are not expected to fall back to year-ago levels.

As a result, suppliers of cotton-based export products in China are continuing to look for ways to cope with the cost pressure. Mixing less expensive fibers such as polyester into a cotton blend is one of the most common measures taken by apparel makers. At 14,800 to 15,300 yuan ($2,252 to $2,328) per ton in the domestic market, polyester costs nearly 50 percent less than cotton.

Huang Sijing, administration manager at Jiaxing Mengdi Import & Export Co. Ltd, said semi-worsted cotton yarn is adopted for some of its sweaters instead of worsted versions to bring down costs. Huang said the resulting garment has a hand feel similar to worsted fabrics at a cost closer to woolen cotton. Such models are likely to account for a greater share of exports if cotton prices stay at a high level for an extended period of time.

Some companies such as Hangzhou Wantong Trading Co. Ltd are developing branded lines for the domestic market. The apparel maker participated in local trade shows in March 2011 to promote its brand.

Larger enterprises move some production processes to inland provinces. Last year, home textiles manufacturer Ningbo Veken Elite Group Co. Ltd bought two dyeing plants in Jiangxi province. This has enabled the company to offset higher cotton costs with savings in processing expenses.

Domestic, imported cotton

China sets purchase prices for cotton buyers to protect its farmers. Because of this, domestic quotes are usually higher than international prices. But strong global demand for cotton has pushed up imported cotton quotes, which are now 6,000 to 8,000 yuan ($912 to $1,216) higher than domestic prices.

Although the country has a strong cotton planting industry, it is also one of the largest importers of the fiber, with annual purchases averaging 2 million tons. Imports, which reach 3.6 million tons in some cases, account for nearly 50 percent of global trading volume.

China customs statistics show the country imported 576,000 tons of cotton in the first two months of 2011, up 10 percent year on year. The US, India and Uzbekistan are China's three largest sources of the fiber, accounting for 61, 22 and 11 percent of imports, respectively.


Note: This article "Soft cotton prices only temporary" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.

All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.

Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

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