Prices of cotton yarns last week fell in China after sharply rising as a result of a surge in cotton prices. Demand from cotton weaving industry is suddenly sliding while a large series of yarn makers reduced or suspended production.

As a clear sign that a major textile crisis in now in view in China, prices of cotton yarns slightly declined on domestic markets in the week ending on October 26th.

After cotton prices surged since the start of October, prices of cotton yarns also sharply increased although less rapidly.

Prices therefore rose about 2,000 yuan in the week ending on October 20th before finally falling about 1,000 yuan per ton (12 US cents per kilo) in the past week.

Wait-and-see attitude:
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First, cotton prices were down at the start of the week, with grade 328 falling from 18,000 yuan per ton down to 16,500 yuan per ton.

Second and more important, demand from downward processors dramatically dropped as a result of the volatility in cotton fibers and cotton yarn prices.

Adopting a wait-and-see attitude, weavers preferred reducing production after meeting increasing difficulties in passing the recent rise in yarn prices on to their customers.

As a result, more cotton spinners continued reducing production in order to avoid huge financial losses. China is currently confronted with excess yarn capacities added to a lack of cotton lint.

Raw material costs account for about 70% of total costs of Chinese spinners.

Carded 32s at US$2.56 per kilo:
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On the Changyi market, average price of 32s cotton yarns fell from 23,000 yuan per ton (US$2.78 per kilo) down to 21,200 yuan per ton (US$2.56 per kilo).

By comparison, prices of 32s carded cotton yarns were at 19,400 yuan (US$2.35) by the end of September.

China''s spinning industry is increasingly replacing cotton by polyester in order to limit the fall in its profit margins.

Although prices of polyester staple fibers rose 2,000 yuan per ton in a few days to 12,000 yuan, the gap with cotton prices is still exceeding 4,500 yuan per ton (54 US cents per kilo).

Prices of cotton-polyester spun yarns also fell last week in China, reflecting a looming depression in the textile industry.

The imminent arrival of large quantities of imported cotton fibers could result in lower cotton prices, however.

According to the US Department of Agriculture (USDA), US cotton sales to China surged in the past weeks. In addition, China would have already raised the 2003 import quota by 500,000 tons, according to unverified reports, dramatically increasing the previous level of 894,000 tons.

Cotton fibers exported to China under the quota benefit from a very low tariff.