Today is my first day back in the office following 2 weeks travelling in China where things have become rather hectic and cashmere prices are increasing rapidly.

CHINA

According to supplier reports this year’s cashmere clip is down 25-35% on last year with high meat prices being the main culprit, currently US$11 per kilo, so herders receive approximately US$220 per goat for slaughter. At current prices they must sell cashmere for 8-10 years to achieve a similar return. Like all of us the big Chinese manufacturers were struggling to pass on recent prices and were waiting for the market to fall back during the summer months. In the meantime small and medium merchants/dehairers have been buying steadily and most fibre is now in their hands. Larger domestic manufacturers, Zhongyin and Erdos, have panicked and began buying heavily which has caused large price increases over the last few days. It is doubtful there is enough material remaining for their requirements and we expect price rises to continue. The Chinese domestic market for cashmere garments seems very active at prices similar to European levels or even higher.

The Chinese government continue to give generous grants or interest-free loans to Chinese manufacturers. It seems everybody involved in cashmere processing are building new and bigger factories. Within 2 or 3 years their capacity will probably exceed world production. The government continue to give large export subsidies for yarn and products (13-15%) and Chinese manufacturers are now re-locating knitting and weaving facilities to countries like Cambodia where they can receive 13% subsidy on their yarn export and ‘favoured nation’ status and zero import duty for the garments. This gives a 26% advantage on exports of sweaters to UK and Europe. How can European manufacturers compete with this. Not surprisingly Chinese manufacturers can continue to force prices up out of reach for the rest of the world. These are important issues to bear in mind for both short and long term cashmere market.

MONGOLIA

There does not seem to be any decrease on last year’s cashmere clip and possibly a slight increase. However a similar thing has happened to the Chinese cashmere and the small traders/dehairers have bought almost all material while the bigger manufacturers wait for prices to fall. They will ultimately have to have to purchase from these smaller traders who will not be prepared to lose money so prices should remain firm and probably increase during the year.

AFGHAN

Seeing a shortage of their own resources China are swarming all over Afghanistan, buying everything, forcing prices up.

CAMELHAIR/YAK

Availability seems reasonable with prices same as last year but will probably follow the cashmere trend before too long.

CONCLUSION

China seem to be firmly in the driving seat, utilising their government benefits together with Europe and the West’s reluctance to support manufacturing. They can control raw material prices which could go through the roof and exceed US$200 per kilo for best white. Last time we saw prices approach this level the RMB was pegged at 8.26/US$. The rate is now 6.1 and will probably fall below 6 this year. China still sees cashmere as a RMB commodity, so to them prices are still lower than a few years previous.

Anyway that’s all the good news, saving the bad news for later.

David M Lee (Director)
For and on behalf of Cashmere Fibres International Ltd