Chinese Cashmere Market review

Chinese cashmere market has experienced ups and downs like any other raw materials market, but with much more volatility, many factors affect prices of raw cashmere fibers, mainly are:

1.demand variation, both domestic and abroad
2.government restrictions on raising goats
3.amount in stock left from last years
4.different phases of cashmere business cycle
5.weather conditions in cashmere-producing regions
6.on going breeding programs for cashmere goats and tendency of pen feeding
7.less organized selling activities of cashmere goat raisers, fiber mills

Some brief reviews of these factors are given below:

1.demand variation, both domestic and abroad

In recent years, both overseas and domestic markets re-find cashmere's value, the demand has picked up, this draws more processors in, in turn I pushes up the demand for cashmere fibers, then again, as a result, raw cashmere price has seen their peak in year 1999 to 2000.

The cashmere processing flow chart looks something like:

farmers--carders--spinners--knitters(weavers--dress makers)--agents--importers--wholesalers--retailers--consumers

Any factor changes in the chain will influence the demand for raw cashmere, e.g. in China's case, both domestic and overseas demands increase, more carders, spinners, knitters, weavers join the line, these all drive prices of raw cashmere up.

Since that period of time, world demand is relatively weak up to year 2004, thus cashmere prices have been dropping form year 2004, for about 30%, till 2005, the prices start to pick up again.

This is the single most important factor affecting cashmere prices

2.government restrictions on raising goats

Frequent environment disasters such as sandstorms, snowstorms, draught and desertion in Northwestern China and surrounding areas taught the Chinese people and Government a good lesson, environment protection is now put into their agenda. Goats include cashmere goats are one of the important environment damaging factors, they eat away every living plants on earth. As a result, goats are restricted by government to certain amount and regions to raise, and inevitably, cashmere goats are going to decrease in numbers. This drives cashmere price up.

3.amount in stock left from past years

When prices are high for cashmere, fiber people try to sell them, when the prices come down, they try to hold the stocks, in past few years, we did not see big jumps and drops on cashmere prices, thus the stock level for now should be reasonable.

4.different phases of cashmere business cycles

Cashmere business has been experiencing apparent cycles, it has four different phases:

phase one: low price, more stock is put on
phase two: steady but low price for several years, stocks begin to build up, at this phase, many cashmere goats are killed by farmers, they are losing money on raising goats
phase three: low produce of cashmere leads to price increase for one or two years, stocks decrease, at this stage, more goats are raised due to the higher prices
phase four: price lower down for one or two years.

Now our judgment is that the cashmere market is at end of phase three, prices will be stable for some time after a year's increase in 2005. Compare with year 2004, current cashmere is at least 30% more expensive.

5.weather conditions in those cashmere-producing regions

All cashmere comes from Northern China, especially Inner Mongolia, Qinghai, Xinjiang, Liaoning, Shanxi, Shannxi provinces. The weather conditions in these regions have been harsh for years, last year Inner Mongolia, which produces the most and best of Chinese cashmere has been going through severe draught and snow storms, which is the norm in these regions, this will adversely affect cashmere trade for sure.

6.on going breeding programs and tendency of pen feeding

Some local governments such as Liaoning and Inner Mongolia in China have introduced breeding programs to improve cashmere quality and productivity, it has shown signs of success; pen grown goats are increasing in numbers, these are the positive factors driving prices down.

7.disordered selling activities of goat raisers and fiber people

Many cashmere goat raisers live in distant areas of those above mentioned regions, they are not informed about the world price, and are not organized in their selling activities, this can be both helpful and harmful to the prices, which is definitely an unstable factor to form a steady and unified cashmere price; plus cashmere fiber people is another actor, who either live in the same region or far away towns like Linhe, Qinghe, Lixian, etc. They are also running their business relatively in smaller scales, they are another unstable factor driwing cashmere prices ups and downs.

What O'formula thinks about the Chinese Cashmere Market:

There are several trends which can be seen clearly of the cashmere market:

First of all, cashmere market is becoming more and more mature, along the time, the volatility is becoming smaller and smaller, cashmere prices will go up or down in a smaller scale, year 1999-2000 price jumps like three times won't be seen again. Our prediction is the prices movements of cashmere fibers will be within the range of 30%, under normal circumstance.

Secondly, cashmere prices at present is at the reasonable level.

Thirdly, cashmere prices will be more different of different cashmere fiber quality in the long run, currently, different grades of cashmere prices sell in different prices, of course, but not in proportion, by saying this, we mean superior cashmere should be much higher than 1 st grade, and 1 st grade should be much higher than 2 nd grade, and so forth.

Fourthly, big buyers are playing much more important role than today's cashmere market than it is 5 years ago.

O'formula does not predict any big price jumps and drops for Chinese cashmere market in the coming year or two.

(Note: this cashmere market review is done on Jan 3, 2006 by O'formula Fashion Ltd, it's simply our personal view, please we do not assume responsibility for your decisions made upon reading the material.)

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