Last week (June 22-28), the Agricultural Development Bank of China (ADBC) hastened domestic merchants to repay the loan more frequently. Merchants intended to speed up sales. The mills, however, seemed to be reluctant to purchase.
Rumors about cotton import quota put domestic cotton price into turmoil since the beginning of June. No matter additional cotton import quota is possible or not, the pressure of loan repayment from the ADBC is true. As the People's Bank of China has recently increased the interest rate of reserves, ADBC has to accelerate its withdrawal of loans for cotton merchants so as to reduce financial risk. ADBC has recently announced that it will continue to support domestic industry, but risks should be reduced through reasonable distribution of loans. ADBC plans to curb excessive competition among merchants by further strengthening its loan procedure in 2006 crop year.
As ADBC urged merchants to repay the loan, sales pressure increased in Hebei, Henan and Hubei. In spite of it, offtake remained light. T328 price ranged between 13,800 and 13,900 RMB/ton in Fugou, Henan province since June 19. Meanwhile, T328 was offered at about 14,000 RMB/ton in Wuhan, Hubei province.
It should be noted that a considerable amount of imported cotton shipped into Handan and Xingtai, Hebei province. Mills in the region began to use more imported cotton than before, though the rumors about limited cotton import quota have been rampant for a long time. According to insiders, the reason why so many mills do not use their cotton import quota until now is that they believe that domestic cotton price might go up by the end of this crop year. That is to say, mills no longer hold bearish attitude towards the market.
The government recently announced the framework of the Eleventh Five-Year Plan, which showed an average annual growth of 6% for fiber processing, with domestic fiber consumption accounting for 75%. Textile sales achieved an average annual growth of 12.7% while textile and apparel export value presenting a 9% growth. Above-mentioned growth is much lower than that of the Tenth Five-Year Plan, which implies that the Chinese government plans to curb the growth of domestic textile industry so as to offset the potential crisis of overcapacity.
It is reported that some mills have almost used up their cotton import quota. As a result, they have to purchase domestic cotton. Obviously, mills have the intention to raise their yarn prices. However, the downstream buyers turn the cold shoulder to mills. Cotton yarn price in Foshan, Guangdong province is a good exaple.
Offerings are as follows:
16S carded cotton yarn: 18,100 RMB/ton
21S carded cotton yarn: 18,500 RMB/ton
32S combed cotton yarn: 24,000 RMB/ton
40S combed cotton yarn: 25,000 RMB/ton
Outlook: Yarn price is likely to be stabilized in near term. Trading is not active during the used-to-be hot season. Textile market is expected to be worse in July and August in comparison with the past. Domestic cotton price will continued to be handicapped by current mill conditions even if there is no addition cotton import quota in 2006.
