A very weak undertone is prevailing in China's domestic market, which has created a significant amount of pessimism among local cotton merchants. First is the weaker state of the textile sector, which continues to buy hand-to-mouth. The ability to carry significant inventories has been limited by the tight availability of credit. The second development is the arrival of large blocks of Xinjiang cotton that is now stored in internal warehouses.
Merchants who had procured new crop (2007/08) cotton and stored it expecting a late-season rally in prices have been very disappointed -- they are now liquidating inventories at a loss.
The situation is demonstrated in Hebei Province, where a review of warehouses indicates a large volume of Xinjiang cotton has moved into warehouses in the province. This included the important Hengshui Cotton and Jute Company warehouse. On July 30, T229 Xinjiang cotton in Hengshui sold at 14,000 to 14,200 yuan per ton, which was down 200 yuan per ton from a year ago. The standard T328 locally-produced cotton traded at 13,600 yuan per ton, which was down 100 yuan per ton from a week ago and 217 yuan below the national average on the same date.
Another merchant turned aggressive and sold local T328 cotton down to 13,385 yuan per ton. Such weakness is causing some panic, with merchants facing nearby deadlines for repayment of ADB loans.
Shipments of Xinjiang cotton is accelerating, with most warehouses expecting additional arrivals over the next 30 days. Xinjiang merchants are also becoming much more aggressive in pricing. The price softness is evident in ELS cotton as well. In the Hengshui area of Hebei, T137 ELS ended the week locally offered at 16,800 yuan per ton, which was down 200 yuan per ton for the week. T237 ELS was offered down to 16,400 yuan per ton.
For the moment, it appears the Chinese domestic market is being impacted by the same phenomenon that has gripped the U.S. market since March, the need for cash and the restriction of credit.
Merchants who had procured new crop (2007/08) cotton and stored it expecting a late-season rally in prices have been very disappointed -- they are now liquidating inventories at a loss.
The situation is demonstrated in Hebei Province, where a review of warehouses indicates a large volume of Xinjiang cotton has moved into warehouses in the province. This included the important Hengshui Cotton and Jute Company warehouse. On July 30, T229 Xinjiang cotton in Hengshui sold at 14,000 to 14,200 yuan per ton, which was down 200 yuan per ton from a year ago. The standard T328 locally-produced cotton traded at 13,600 yuan per ton, which was down 100 yuan per ton from a week ago and 217 yuan below the national average on the same date.
Another merchant turned aggressive and sold local T328 cotton down to 13,385 yuan per ton. Such weakness is causing some panic, with merchants facing nearby deadlines for repayment of ADB loans.
Shipments of Xinjiang cotton is accelerating, with most warehouses expecting additional arrivals over the next 30 days. Xinjiang merchants are also becoming much more aggressive in pricing. The price softness is evident in ELS cotton as well. In the Hengshui area of Hebei, T137 ELS ended the week locally offered at 16,800 yuan per ton, which was down 200 yuan per ton for the week. T237 ELS was offered down to 16,400 yuan per ton.
For the moment, it appears the Chinese domestic market is being impacted by the same phenomenon that has gripped the U.S. market since March, the need for cash and the restriction of credit.
