New crop procurement prices remain weak across China, which is due to several factors. One reason is that ginners, merchants and mills lack working capital. Several ginners and merchants have not yet fully liquidated 2007 cotton stocks, which means they have not repaid the Agricultural Development Bank loans -- this translates into no new 2008 procurement loans. Another factor is that gins and merchants are being forced to turn to private funds, which occasionally are raised from local investors at a high cost. Then there is the situation with spinners who face losses in working capital and are seeking to buy new crop on credit, which only worsens the condition of ginners.
Outside these macro features, the by-product market for cottonseed oil and meal remain weak. In many markets over the past week, the local price of cottonseed oil has dropped 800 to 1,200 yuan per ton, reducing the price of cottonseed by .20 yuan per kilogram or more. In addition, ginners are attempting to procure cotton amid a very weak lint market, with the average spot market price for T229 and T324 decreasing 129 to 137 yuan per ton on Tuesday, September 16, alone.
The impact of these developments has resulted in ginners being cautious about procuring cotton. In Shandong Province, the procurement price of mixed-grade seed cotton softened from the opening price of 6.2 yuan per kilogram to 5.8 - 6.0 yuan per kilogram. The highest seed cotton price offered in many markets is 5.8 yuan per kilogram.
The smallest gins that are buying cotton have made the situation worse. They have hastily processed any cotton procured and have ginned it with a moisture content of 20% without drying it, forcing them to quickly sell the cotton before it deteriorated -- this has weakened overall price levels. In some areas, the small gins are selling lint at 12,000 to 12,200 yuan per ton in the local market. The national average spot price, delivered the mill, is 12,932 yuan per ton. |
