A senior official from the China Cotton Association has predicted that China's cotton prices, having undergone several slumps recently, will fluctuate within reasonable margins in the months before the next harvest

Gao Fang, the association's secretary-general, told China Daily that, "There will be no drastic ups or downs in the coming months." She said the government's recent decision to harvest 300,000 tons of cotton as national reserves at the highest price of 11,500 yuan (US$1,390) will help stabilize the price and prevent it from falling.

Cotton farmers have witnessed falling returns as they sell cotton at 2,400 yuan (US$290) per ton less than last year. The price on the spot market currently stands at about 11,500 yuan (US$1,390) per ton, around 2,000 yuan (US$241) lower than before the harvest in August.

Gao attributed the price drops to a bumper harvest both at home and abroad and predicted that this year's output could reach between 6.1 and 6.3 million tons, about 1.4 million tons more than last year.

Market players are increasingly cautious of agreeing to large and long-term purchases. Most signed deals are due to end before March, according to Gao. This is why this year's cotton harvest is much slower and might be one month later than the previous year.

Some cotton spinners bought large stocks last September and October at a peak price of 17,700 yuan (US$2,140) per ton. They then found the price dropped to less than 13,000 yuan (US$1,572) in May.

Uncertainty about next year's textile exports also impedes cotton consumers' enthusiasm to stock cotton.

"Textile producers and cotton spinners are worried their products will face more import limits from the United States and other countries," she said. "They are watching and waiting for the situation to get clearer before they dare to buy more cotton and increase production."

Commenting on cotton imports, Gao said China still needs about 1.4 million tons next year. Next year's import quota of 890,000 tons, plus this year's remaining 500,000 tons, will resolve the shortage overall.

Recent price changes did demonstrate that the country's cotton sector is becoming increasingly market-oriented, Gao added. "Cotton prices represent the interaction of demand and supply."

However, the sector is not yet totally market-driven as China's numerous, sparsely located growers, mills and textile manufacturers are slow to respond to market changes and price fluctuations, a disadvantage sometimes resulting in dramatic price changes.

"China has more than 40 million rural families growing cotton and 6,000 to 7,000 factories spinning cotton. Most of them are small-scale and inefficiently operated," she said.

China's changing and open cotton market has created a number of business opportunities to cotton information providers.

"All cotton-related businesspeople including growers, collectors, distributors and consumers, are keener about this market than ever before," said Tu Xinquan, a researcher from the China WTO Studies Centre at Beijing’s University of International Business and Economics.

"There is a greater demand for detailed and precise information from the domestic and international markets compared with a few years ago when China's cotton market was quite isolated from the global market," he said.

(China Daily November 11, 2004)