The price of China cotton Grade 328 returned to the level of two weeks ago, to 13,519 yuan per ton. This was down 3 yuan per ton - a 0.02% decrease in yuan terms compared with the price of last monday. In US$ terms, it was up 0.03 US cents or a 0.04% rise due to the revalation of the yuan.
Chinese cotton markets continued to weaken. Prices from CNCE (China National Cotton Exchange) declined 125 yuan on average. There was a strong decrease for MA0508 which was down 180 yuan or 1.32% from the prior week.
Prices of ZCE (China Cotton Futures) also fell. There was a decline of 130 for CF508 or 0.96% compared with the price of the prior week. This was mainly due to the reduction of cotton import prices from the revaluation of the yuan and the declining demand from chinese factories. But there was a rise of 110 for CF509 due to the support from the NYBOT that rebounded last week.
China cotton prices were expected to remain weak due to the reduction of cotton consumer confidence after the 2% revaluation of the yuan
The revaluation reduced the cotton import prices especially a 2% decrease of US cotton imports. The increase in demand for imported cotton led to weakening prices of domestic cotton.
The revaluation also increased export prices of Chinese textiles and apparel as the decline of Chinese price advantages generated some difficulties for exporting, resulting in the reduction of chinese cotton demand.
China cotton prices were expected to rise in the long term due to the reprise of demand from Chinese factories.
Firstly, Chinese textiles and apparel exports lost 2% of price advantages after the revaluation of the yuan, which resulted in Chinese factories being able to reduce raw costs, such as cotton, and improve manufacturing techniques, aimed at amplifying long term profits.
Secondly, consumption of world cotton in 2005-2006 is expected to increase more than production. World cotton prices were predicted to increase in the long term. USDA predicts world cotton production will be 6.88 million tons lower than world cotton consumption in 2005-2006. Chinese cotton consumption will be 3.266 million tons higher than Chinese cotton production.
ICAC predicts Cotlook A will be 65 US cents per pound on average, 13 US cents higher in 2005-2006 than the level of previous year.
Thirdly, the Chinese textile industry progressed rapidly this year: in the first half of the year, Chinese cotton yarn productions reached 63 million tons - a 23% rise compared to the level of last year in volume term. In June, Chinese cotton yarn productions attained 12.36 million tons - a 23% increase compared to the level of June 2004.
China cotton prices were still in recession due to the large cotton stocks on the Chinese market and financial difficuties for Chinese factories. A successful outcome to Sino-US textile negotiations remains unclear.
The strong rebound of cotton prices for NYBOT and the third round of Sino-US textile negotiations this month could give some expectations for Chinese cotton markets.
