Cotton prices rule at record levels

LAHORE (October 15 2010): Cotton prices attained record highs this Thursday, not seen since they reached historic high levels on the seventh of July, 2010 at Rs 7500 per maund (37.32 Kgs) and have now hit the new apogee of Rs 7600 per maund. Shortage of cotton crop in China and Pakistan, restrictions on exports of cotton in India, high global demand for lint and the slithering value of the United States dollar have all bunched together to promote a global bulls market in cotton.In fact, the sharp rise in the commodity complex around the world, deterioration in the value of the greenback and emergence of currency wars on the global money markets have created a keen appetite on many of the commodity markets to go long on a global scale. Cotton has been a top runner in this game with successful bull moves enabling the bull strategists to manage a virtual stranglehold on the commodity.With this background, many a Pakistani spinner finds himself in a difficult situation, including those who had opted to buy cotton on an “on call” basis. The only respite the millers see is in the increase in prices of yarn, fabrics and other textile goods in the local as well as the foreign markets. Even cotton waste prices are reported to have gone up.The value added textile industry is complaining that because of the unusual rise in the costs of cotton and yarns, liquidity crunch, funds stuck up in various duty drawback and refund schemes, strong competition from India, China and Bangladesh, increasing cost of gas and power coupled with reduction in gas and power supply is hurting the downstream textile sector seriously.Be that as it may, it appears that the government is favouring a free market mechanism in the domain of trade, industry and exports to let the forces of demand and supply to determine the prices which is deemed to be of optimal good and inculcates efficiencies for the entire spectrum of economic activities.

Despite all the difficulties and deficiencies concerning high cost of doing business, high cost of raw materials and outages of power and gas supplies, traders say that Pakistan is still likely consume anywhere from 14.75 to nearly fifteen millions cotton bales of domestic size during the current season (2010-2011). With cotton production output estimated to be between 11.50 to twelve million domestic size bales, a hefty number of 2.5 to nearly three million bales (170 Kgs) will have to imported (August 2010 – July 2011).

Upto now, Seedcotton (Kapas/Phutti) equivalent to nearly 4.2 million domestic size bales of cotton have arrived into the ginning factories throughout the country. Estimates of import bookings till now are variously reported to be between 1.2 to 1.4 million bales (170 Kgs), mostly from the United States, India and Brazil. However, it is also reported that cotton exporters from Pakistan may have sold anywhere from one hundred thousand (100,000) to about one hundred and fifty thousand (150,000) bales till now for which they have covered nearly eighty thousand (80,000) bales till now. Destination also includes Bangladesh where there is reported to be cotton shortage due to suspension of shipments from India.

New York cotton futures prices (ICE) on the electronic Exchange for the key December, 2010 contract closed at US Cents 110.87 per pound on last Wednesday but around six pm Pakistan Standard Time (PST) on Thursday, the frontal months of December 2010 and March 2011 both recorded limit up gains. Thus, the active December 2010 contract was at US cents 114.87 per pound (up by 400 points) and the March 2011 contract increased to US cents 110.97 per pound (up by 400 points).

These developments signify that there are little prospects for any significant downturn in fibre values for the time being, but they could sober off later in the season viz. January 2011 onwards. But there is no absolute telling, how the highly volatile and erratic the fibre values will remain. There is some conjecture that with increased seedcotton arrivals in the northern hemisphere cotton growing countries, some of the bullish flames may be drenched with increased supply and added momentum in fibre arrivals with the advance of the season (2010-2011).

In ready cotton business on Thursday, 1000 bales of cotton from Sultanabad sold at Rs 7,450/= per maund (37.32 Kgs), 2000 bales each from Tando Adam and Mkipurkhas and 3,000 bales from Khairpur district all sold at Rs 7,450 to Rs 7,500 per maund, 200 bales from Bucheri sold at Rs 7,500 per maund and 1,200 bales from Upper Sindh (K-68) sold at Rs 7,500 / Rs 7,600 per maund.

In the Punjab, 1000 bales of cotton from Layyah reportedly sold at Rs 7,400 / Rs 7,450 per maund (37.32 Kgs), 1,000 bales from Khanewal sold at Rs 7,400 / Rs 7,500 per maund and 1,000 bales from Rajanpur sold at Rs 7,500 per maund. Domestic millers as well as exporters were active participants in the market.

On the global economic and financial front, nothing seems to be going right. There is disagreement amongst the major players as how to remedy the entangled economic situation, which seems to be slipping further. Now, there is full fledged talk of currency wars amongst major nations, unemployment continues to rise, fears of malfeasance and corruption in government departments is coming out in the open and the last not least, the fears of protectionism and erection of trade barriers are raising their ugly heeds.

With several leading governments having already emptied their coffers and also depleted most of the trust money lying with them in pensions and other funds having been squandered off, there now seems little space for the governments to manoeuvre any means to rehabilitate the down trodden global economic or the financial structure. The equity markets keep brandishing their gains and positive moves, but millions more poor souls are languishing in misery increasingly because as reported from one quarter the poor of the world “cannot eat GDP (Gross Domestic Product) or consume equity gains – Brecorder