The raw silk market in China has been on a rollercoaster ride this year.

Statistics from a monitoring center in east China's Zhejiang Province showed the material soared to 360,000 yuan (US$45,000) per ton in February from January's 250,000 yuan (US$31,000) per ton, in contrast to the 160,000 yuan (US$20,000) per ton registered last February.

But from April until now the price of raw silk fell sharply to 210,000 yuan (US$26,000) per ton, equivalent to last October's price level, hurting both suppliers and clothing makers.

"From the early 1990s, the silk price remained between 110,000 yuan and 240,000 yuan (US$14,000 to US$30,000) per ton, and such bumpy conditions have never happened before," said Ma Xihao, president of Jiaxing-based trader Dajiangnan Silk Co Ltd.

Dramatic price fluctuations in the silk market were partly caused by speculation that Jiaxing-based China Cocoon and Silk Exchange in Zhejiang Province, the country's largest entity for spot silk trading, has illegally organized a silk futures exchange.

Established in July 1993, the China Cocoon and Silk Exchange is only allowed to engage in spot transactions and electronic contract transactions.

Currently the exchange has an annual turnover of more than 10 billion yuan (US$1.25 billion), with most of its products traded for export.

In its letter to the Zhejiang provincial government earlier this year, the Ministry of Commerce said that as the country's biggest platform for cocoon and silk transactions, the exchange helps form the "Jiaxing Index" that drew attention from both home and abroad.

But it has long been suspected that the exchange illegally organized trading for silk futures contracts. Traders including Dajiangnan have taken the exchange to court and proceedings are expected to begin next month.

"It can't be denied that speculative behaviours exist in the China Cocoon and Silk Exchange," Qian Youqing, secretary-general of the Chinese Silk Association, said earlier.

Experts warned the chain reaction caused by a volatile cocoon silk market might badly hurt the silk industry that relies heavily on exports and it may lose its advantage in influencing the cocoon silk price on the international market.

Assistant Minister of Commerce Huang Hai said at a working conference for cocoon and silk in April that an immature raw material trading market, incomplete regulations and the lack of experience dealing with excessive speculation have led to frequent disturbances on some commodity trading markets.

The ministry also warned the industry might suffer a great loss and lose its right to determine the cocoon silk price if the issue couldn't be dealt with properly.

"Currently some silk and clothing makers have reduced their production or switched to other businesses given the high prices of raw silk," said Xu Kunyuan, vice-president of the China National Textile and Apparel Council.

A fading market would mean China would lose its right to determine industry prices, he added.

(China Daily July 8, 2006)