A note from Don Fox, President of Alashan Cashmere Company:
2012 is shaping up to be a challenging year for prices in cashmere. As many of you know, I spend a great deal of time in Inner Mongolia, working with our raw material collecting teams. When I returned from my last trip in November, I prepared a summary of my findings. i would like to share some of that with you now as we get ready to move into the show season.
Through fall and early winter, I had been discussing cashmere raw material pricing with many of our people. At this time I unfortunately see no indication that cashmere prices will be coming down anytime in the near future. Please allow me to recap my findings and the current outlook for cashmere prices.
To date in January, there has been a slight drop in demand for 100% Cashmere products in USA, Europe and Japan. Some large retailers have moved to blended product and/or cut back on cashmere buys. While that has taken place the red hot Chinese consumer market is more than making up for the loss in export business for Chinese mills. Chinese domestic brands continue to grow in importance for their home market. The ever improving strategies to grow these brands has lead to year-on-year increased internal Chinese consumption of an annual cashmere clip each year in the past decade. As the demand for luxury product continues to grow in China. I see no reason to believe that cashmere demand will do anything but go up,
The other factor that is contributing to prices remaining firm has to do with supply. There is a definite supply problem in every producing area, from Tibet and Qinghai in the southwest through Xingjiang in the northwest, and all of Inner Mongolia. In fact, every cashmere producing area, big or small is experiencing the same problem. We are now paying for the cheaper cashmere prices from the past 4-5 years. Most of the herdsmen and nomads who raise cashmere goats also raise ship. The herdsman do not care if the goat is producing a beautiful 15.5 micron, white cashmere fleece or if his sheep is producing a coarse, carpet grade, dark wool fleece. They only care what they can earn on each animal. The costs to raise cashmere goats continue to rise and the returns on these animals have not risen for some years. If the herdsman can make more money on the sheep, then they will raise more sheep and fewer goats. And that is exactly what has been happening in the past few years.
There are also macro government issues related to where the goats are allowed to graze. Because goats will eat not only the grass, but pull the roots out and eat those, they have in the eyes of the Chinese government, contributed to the expansion of the Gobi Desert and other desert areas. Sheep will just eat the grass and not the roots, so they can be grazed on open pasture more than goats. The herdsmen must then pay for more feed for the goats and let them into open grasslands for less time. This is more costly for them.
The bottom line is that we have a supply problem brewing and so far we have not seen any signs of an easing. We at Alashan Cashmere Company remain committed to providing you excellent quality fiber in our yarns and garments. We will not force the prices down through the introduction of inferior quality raw materials and I encourage you to look carefully at the deals that seem too good to be true this year. We have not reached cashmere prices like this in near a decade so it is important to be discerning with your cashmere purchases.
Wish you all the best.