After recent slumps, China's cotton prices will fluctuate within a reasonable margin in the next few months before the next cotton harvest, according to a senior official from the China Cotton Association (CCA).

"There will be no drastic ups or downs in the coming months," Gao Fang, the association's secretary-general, told China Daily.

She said the central government's recent decision to harvest 300,000 tons of cotton as national reserves at the highest price of 11,500 yuan (US$1,390) will help stabilize the price and prevent it from falling.

Cotton farmers have witnessed falling returns as they sell cotton at 2,400 yuan (US$290) per ton less than last year.

The cotton price on the spot market currently stands at about 11,500 yuan (US$1,390) per ton, around 2,000 yuan (US$241) lower than before the harvest in August.

Gao attributed the price drops to a bumper harvest both at home and abroad.

She predicted that this year's output in China could reach between 6.1 and 6.3 million tons, about 1.4 million tons more than last year.

Market players are all increasingly cautious of agreeing to huge and long-term purchases. Most of the signed deals are due before March, according to Gao.

This is why this year's cotton harvest is much slower, and might be one month later than the previous year.

In previous years, cotton was harvested from September to December.

Currently, most of the cotton is still kept in growers' hands.

"Most distributors sign short-term deals with cotton consumers and are reluctant to buy largely from cotton growers," she said. "Drastic price changes from last September to this May have scared cotton purchasers," she said.

Some cotton spinners bought large stocks last September and October at a peak price of 17,700 yuan (US$2,140) per ton. They then found the price dropped to less than 13,000 yuan (US$1,572) in May.

"Buyers do not want to repeat that nightmare," she said.

Uncertainty about next year's textile exports also impedes cotton consumers' enthusiasm to stock cotton.

"Textile producers and cotton spinners are worried their products will face more import limits from the United States and other countries," she said. "They are watching and waiting for the situation to get clearer before they dare to buy more cotton and increase production."

Commenting on cotton imports, Gao said China still needs to import about 1.4 million tons next year.

Next year's cotton imports quota of 890,000 tons, plus this year's remaining 500,000 tons, will generally resolve the shortage.

The recent price changes demonstrate that the country's cotton sector is becoming increasingly market-oriented, Gao added.

"Cotton prices represent the interaction of demand and supply," she said.

However, the sector is not yet totally market-driven.

China's numerous, sparsely located cotton growers, mills and textile manufacturers are slow to respond to market changes and price fluctuations, a disadvantage sometimes resulting in dramatic price changes, she said.

"China has more than 40 million rural families growing cotton and 6,000 to 7,000 factories spinning cotton. Most of them are small-scale and inefficiently operated," she said.

"It is a sophisticated market with so many small-sized, slow responding players," she said.

China's changing and open cotton market has created a number of business opportunities to cotton information providers.

"All cotton-related businesspeople including growers, collectors, distributors and consumers, are keener about this market than ever before," said Tu Xinquan, a researcher at the China WTO Studies Centre under the University of International Business and Economics in Beijing.

"They are in a greater demand for detailed and precise information from the domestic and international markets compared with a few years ago when China's cotton market was quite isolated from the global market," he said.

"The cotton information market has become a heated battlefield and will continue to be so in the next few years," Tu believes.

Source: China Daily