The Year of the Rabbit Will See Cashmere Prices Soar Like Never Before

Do not be surprised or pinch yourself if you hear that the price of cashmere has reached MNT70,000. This will probably not be a dream. I have just learnt about it myself in an interview with the Mongolian Wool and Cashmere Association Vice President Mr G.Yondonsambuu. However, it does not mean that the price is set to reach MNT70,000 yet; but in any case, the first price to be established this March will determine the price rate for the rest of the year. Consequently, it can be concluded that this year’s price will be relatively higher than precedently.

The Khentii province has been supplying goat cashmere for many years. As of the 18th of March, experts announced that in the Khentii province, herders were evaluating the situation and only started to dehair the goats. By the time this magazine edition is published, combing the goat and dehairing the wool will have undoubtedly intensified. Can anyone remember a time when the price of cashmere was so high?

Many people are involved in the cashmere business in Mongolia and a lot can probably remember. Since the end of 1990’s, the price of cashmere has been going up and down. During this period, the highest cashmere price ever reached was MNT52,000 and the lowest MNT17,000. As of the 18th of March, the price of cashmere has been set at around MNT 53,000 to 55,000 in the Khentii province. This can be considered to be the price proposed by producers. However, herders are not too keen or in hurry to sell their wool at that price should grow even higher and they think it should reach at least MNT60,000. Taking this into consideration, Mr G.Yondonsambuu is predicting that this year’s start-up cashmere price is most likely to be MNT60,000. Now the question whether our national producers will be able to stock up on such high priced cashmere inevitably arises. Let’s take a look at the reasons for such a price surge.

Reason number 1: According to a recent livestock census, the goat population increased to reach 19.9 million by the end of 2009, before to significantly decrease to 13.8 million in 2010. Despite the fact scientists and researchers - who study the desertification process in Mongolia and partially hold the goats responsible - welcome the news, this is really bad for Mongolia’s economy. If approximately 20 million goats annually produce about 7,000 tons of cashmere, then now it will be only possible to produce twice as less. For the national producers who came last in the cashmere business competition, at a time when raw material was abundant, this is simply devastating. However, it is another story for the Chinese who have been wrestling with the Mongolian cashmere industry for many years. Since they have money, they need not to worry, and might even rejoice. 
Textile producers and the heads of professional associations declared that due to small stock and high prices, the Year of Rabbit will see significant obstacles occurring in the country’s cashmere industry. Nevertheless, they will not complain that the prices are so high.

Reason number 2. First of all, Mongolian cashmere producers need to draw lessons from last year. Last year’s competition among cashmere businessmen was stiff. In the end, there was a clear winner: China. Like every year, Chinese attempted to kill the Mongolian competition by purchasing cashmere raw material at higher prices. Large national producers such as Gobi and Eermel companies barely came out from the “battlefield.” They relied upon their small stocks, which came to a shortage at the end of the year and led them to panic. So what will happen because of the soaring of prices?

Of course, it will yield high profits to herders. However, it will negatively affect national producers who have poor floating capital and high interest banking loans. However, they try not to complain about high cashmere prices - like during the previous years - because the market price rate is set. This probably requires a small explanation. Mongolia and China determine the world cashmere market. In the People’s Republic of China, there was a decrease in the number of goats herds. Meanwhile, domestic demand for cashmere products increased due to an augmentation of the Chinese middle class and its consumption of cashmere products. This led our southern neighbor to stop its exports of combed cashmere. In addition, demand for cashmere products has also increased due to the world economic recovery. So how can we stock up on textile raw material if our cashmere producers do not mind the high prices?

National producers urgently demand from the Government that they renew the taxation for combed cashmere exports which was zeroed in 2008. But a year away from the elections, Parliament members are unlikely to welcome an export taxation on cashmere. Therefore, it is important to remind our esteemed members of Parliament that their understanding that a raise  of the cashmere export tax will reduce herders’ profits, is obsolete because the soaring prices of cashmere will not be intimidated by export taxation. In other words, the current price rate of MNT60,000 will stand with or without export tax.  In Mongolia as well as in China, demand is rapidly increasing. For example, foreign orders for companies such as Gobi, Goyo and Eermel have substantially increased in comparison to previous years. If last year Gobi produced 180,000 textile products, then this year it plans to market 300,000. Therefore, our large wool and cashmere processing factories are preparing to train in total 5,000 textile workers. They say they can afford to pay salaries of MNT300,000 to 500,000 and that jobs have  already been advertized in the media.

As for China, the main player in cashmere production, it is closely paying attention to its domestic production and Chinese cashmere intermediaries are starting to pay extra attention to Mongolia. In such circumstances, we hope Parliament Members will understand the necessity to levy a cashmere export tax. Experts envisage the possibility to set the tax rate at MNT10,000 per kilo of cashmere, and have submitted their proposal to the Government. The Prime Minister met with cashmere producers three times to discuss the obstacles facing them and ways of resolving them. Finally, Finance Minister Mr S.Bayartsogt promised to provide them with MNT100 billion over a period of 10 years. Now producers wait for the cashmere issue to be discussed during the spring session as it is set high on the political agenda.

Our wool and cashmere industry can be considered to be quite well developed. For example, there currently are more than 10 textile factories, more than 10 factories producing final products, more than 20 primary processing factories and more than 200 small textile workshops conducting operations in Mongolia. In addition, the large primary processing factory MMG Capital from Xianjan-Uigur, Inner Mongolia, has just been put into operation near the entrance gate of the city of Ulaanbaatar. The total cashmere stock of this factory amounts to almost the total annual stock of our cashmere. Hopefully, Government officials will understand that it is time to conduct a strict policy to protect our production of cashmere raw materials in accordance with foreign and domestic market conditions.