Domestic cotton prices will stay at their current low level for a while, because of bumper domestic harvests, temporary cash shortages among spinning mills and an uncertainty about exports, according to a veteran market observer.

"Prices will continue lingering around at a low level before the domestic growing season comes in April," said Gao Fang, secretary-general of China Cotton Association (CCA).

According to CNCotton.com, a leading Chinese cotton information portal, the cotton price of spot transactions stood at 11,887 yuan (US$1,437) per ton on Friday.

That was in stark contrast to the as high as 13,900 yuan (US$1,680) before the harvest in August of last year, let alone the peak of 18,000 yuan (US$2,176) earlier last year.

The harvest is the most pronounced factor that drags down prices, said Gao.

The nation reaped a record of 6.32 million tons of cotton in 2004, media reported recently. In 2003, the output was 4.86 million.

Gao said the figure was released by the National Development and Reform Commission, China's top economic planner, and it goes with the association's estimation.

"Think about the increase," she said. "It is natural that the prices go down."

When output rises sharply, however, demand become somewhat sluggish.

"Cotton users are reluctant to ink big purchases," she said.

Cotton spinners and textile producers say they are running out of money due to credit tightening placed by the central government in May, aimed at cooling down the blistering economy.

"We are struggling with a shoe-string budget. It's much harder for us to get bank loans now," said Yang Chao, a manager with a Yangzhou-based textile company. "Before the Spring Festival, we have no intention to buy big stocks of cotton."

The Spring Festival, or Chinese lunar New Year, falls on February 9 this year.

"Usually we sign deals to buy a large amount of cotton beginning from October every year," Yang said. "But this year, we lack sufficient cash to do so."

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

Although the decades-long global textile quota regime came to an end on January 1, 2005, textile producers and cotton spinners are worried that their products will face more limits in the international market as many countries are afraid of a flood of made-in-China textile products.

The United States and Turkey imposed new limits on certain Chinese imports in recent months.

And the Chinese Government, to quench this fear and to encourage exports of high added value, has started to levy duties on some textile exports.

The move reduced some producers' ambitions of expanding production.

Due to the combination of these factors, "most of the textile producers are watching and waiting for the situation to get clearer before they dare to buy more cotton and raise production," said Gao.

Wu Jiming, an official with Sainty Corp in East China's Jiangsu Province, echoes Gao's saying.

"We just don't know what will happen in the future... in a world without quota," he said. "Although the business is not bad presently, we feel no cheer."

Commenting on cotton imports, Gao said China still needs to import at least 1.4 million tons this year despite the domestic harvest.

"Judging from the normal growth of China's textile industry, demand of cotton will be about 7.7 million tons or higher in 2005," she said.

This year's cotton imports quota of 890,000 tons, plus last year's remaining 500,000 tons, will roughly resolve the shortage.

(China Daily January 24, 2005)