Cotton Price Drop is Beneficial to Downstream Enterprises

In Recent years, as cotton price gap between China and Abroad continues widening, the cost of China textile industry raw material remains high, which resulted in the tough situation of textile enterprises. Temporary subsidies for cotton will be cancelled since 2014 and China plans to carry out target price reform that may reduce domestic cotton price and shrink the widening cotton price gap between China and abroad, meanwhile relieve the pressure on textile enterprises.

Cotton Price Drops 10%

According to iAbrasive report, the National Development and Reform Commission (NDRC) has decided to carry out the 3-year plan that temporary subsidies for cotton be cancelled and give allowance to Xinjiang experimental unit, other regions will be carried out later accordingly. iAbrasive professional analysts, the new policy will exert an influence on China cotton price trend and cotton price is predicted to decline by 10%.

Upon the approval of China State Council, The NDRC, together with the Ministry of Finance and the Ministry of Agriculture has released the cotton price--19,800 Yuan. In 2014, the target price policy is to compensate for cotton production cost in experimental units and guarantee farmers' basic income.

iAbrasive reporters have learned that China cotton price has witnessed substantial fluctuation during 2010 to 2011. To guarantee farmers' living, the 3-year temporary has guaranteed domestic cotton price. However, side effects went along the way. Take the year 2013 for example, domestic cotton purchase price was 20,400 Yuan per ton, while international price was as low as 15,000 Yuan. The farmers' profit was guaranteed, but textile enterprises encountered a tough situation due to increased cost. 

China central rural working group leader Chen Xiwen says, "To do agricultural products price reform, Xinjiang cotton price will experience the first trial. The reform intends to converting from the lowest price formulation to achieve gradual target price.

Weakening Chinese Government Direct Intervention

Zhou Shengtao, the chairman of China Cotton Association expressed his thoughts and ideas about China cotton price situation when receiving an interview of iAbrasive. "Since it's the first year to carry out target price reform, the market situation is dramatically different from previous period. The risk and uncertainty is increasing. China has large amount of cotton in store, even if national planting area decreases by 12.6%, cotton market remains "supply exceeds demand". 

The Chinese government is to adjust the market both in terms of tackling present situation and predicting the potential problems in the near future. Direct intervention is fading and even dropping out of the market, which may rely on itself to dominate the price.--iAbrasive report