China's cotton prices may show weak trend

 

 

The domestic cotton prices of China are anticipated to show a low trend as the state stockpiling programme for 2011-12 is to close by end of March, according to analysts.

 

China's cotton market has been choppy recently amid mixed news such as the government's raise of the minimum purchase price for this year and India's scrapping of the week-long ban on cotton exports.

 

Although it is still more than two weeks before the close of state purchases, the market has already shown concern that cotton prices may become soft without the support of the government's stockpiling.

 

However, some industry analysts project that cotton prices have already bottomed out and are likely to hold steady at a range from RMB20,000-25,000 (US$3,164-$3,955) per tonne.

 

The national cotton price index, CCIndex 328, which indicates the average spot price of standard lint in China, closed at RMB19.575/tonne (US$3.1) on Wednesday (Mar 14), edging up RMB5/tonne (US$0.79) over the previous trading day. The index has been fluctuating at a band from RMB3-10/tonne (US$0.47-$1.58) recently.

 

However, one cotton trader says that the market has not been as quiet as the modest change of the index suggests. Currently, cotton businesses are more and more anxious, given tepid demand from downstream industries as well as India's lift of a ban on cotton exports.

 

The state stockpiling plan for the 2011-12 crop year is drawing to a close, which means the major channel for destocking of cotton businesses will be shut down, and without the backing of state purchase, the cotton price is hard to be pleasing in the April to September period.

 

Up to now, China has purchased 2.87 million tonnes of cotton for state reserves since the current crop year's stockpiling programme started in September. This represents 43.5% of the country's cotton output last year.

 

A research report by Guotai Junan Futures says that domestic cotton consumption this year is likely to drop below nine million tonnes, lower than the estimated supply of 13 million tonnes. The oversupply on the cotton market will limit the room of prices to rise this year.

 

Some analysts believe that cotton prices will go down after March due to slim market demand.

 

India's changeable cotton export policy also added to the uncertainty of cotton prices.

 

India announced on March 5 that it would prohibit cotton exports but removed the ban six days later. This means that China's cotton prices will continue to have to battle against pressure from the lower prices of overseas cotton amid the depressed economic environment over the following months.

 

After the end of the state stockpiling programme, cotton prices will possibly follow a downward path to narrow the spread with foreign cotton, according to a textile analyst at alibaba.com.

 

Wang Qianjin, chief editor with the textile industry portal www.webtex.cn says in a research report that cotton prices have moved off the bottom but are displaying only a slow rise trend. He predicts that cotton prices will change amid amply supply, sluggish demand, and policy regulation in the coming six months, adding that cotton futures prices are likely to stay at the range from RMB20,000-23,000/tonne (US$3,164-$3,639).