Cotton prices slump again

After showing some steadiness earlier in the week, cotton prices in the ready market slumped again to lose atleast Rs 200 per maund (37.32 kgs) over the past couple of days. Faltering business prospects for the domestic textile industry amidst reports of increasing lack of power and gas supplies to the industry, social tensions and political uncertainties in the country have further aggravated the business sector badly.
Steeply falling confidence in global economic context and plunging equity, property and crude oil prices have also had a decidedly adverse effect on the Pakistani business sector. The reports of plunging rupee value against the United States dollar to an abysmal 86 units against the greenback in the open market is also having a detrimental effect on almost all business and industrial activity in the country including the property market. It is also stoking unprecedented inflation in the economy.
In line with the lackluster sentiment in the cotton market on Thursday, seedcotton (kapas/phutti) prices slipped lower to range between Rs 1,600 to Rs 1,700 per 40 kgs in Sindh and they reportedly ranged from Rs 1,500 to Rs 1,650 per 40 kgs in the Punjab according to the quality.
In line with the reappearance of the bearish mode of cotton prices, ginned cotton prices in Sindh reportedly ranged lower from Rs 3,300 to Rs 3,350 per maund (37.32 kgs), while in the Punjab they are said to have ranged from Rs 3,350 to Rs 3,400 per maund.
with tight liquidity in the market and low offtake of textile goods, together with short and interrupted supply of gas and power to the textile industry, angry mills are protesting against the government in the streets and are proposing to close down their units.
Though presently the textile industrialists are not faring well at all, but they may do better in exports which accounts for about 50 percent of their output due to plunging value of the Pakistani rupee against the United States dollar.
Moreover, the worsening of the global economic situation despite passage of the US dollars 700 billion bail-out law in congress and similar steps taken in Europe, Japan and elsewhere, and steep fall in equity values in United States, Europe and the Asian markets, has also given a bad blow to the business conditions of Pakistan.
With a wider world economy going down the drain incessantly and chances of global economic activity degenerating into a catastrophe, business in Pakistan is also effected in a large way. There are also estimates of lowering of the annual cotton consumption in Pakistan which can go down to 14.5 million domestic size bales or even less if the current dismal situation continues in the textile industry.
But then there are also reports again downsizing current cotton output estimates to range from 11.5 to 12 million domestic size bales due to pest presence and lower ginning out-turn (GOT) following recent spell of heat in the cotton belt. Also, some trouble with flowering is being reported from certain growing areas.
Of course, the drastic down fall of cotton futures prices on the New York cotton futures market (ICE) is not lost upon domestic millers. Thus on last Wednesday the key December 2008 contract shed value to settle at US cents 47.54 per pound (down by 263 points) and at one time it had also established life-of-contract-low.
The March 2009 contract ended the session at US cents 51.88 per pound (down by 271 points), while the May 2009 contract concluded the day at US cents 53.63 per pound (down by 281 points). As with other commodities and the equity markets around the globe, it is very possible that the worse is not yet over and over-riding positive cotton fundamentals the fibre prices could see still lower levels.
Ready sales reported on Thursday included 200 bales of cotton from Mirpurkhas in Sindh at Rs 3,250 per maund (37.32 kgs), 400 bales each from Shahdadpur and Tando Adam at Rs 3,300 per maund but later in the evening a sale of 200 bales from Sultanabad was also reported at Rs 3,100 per maund. Sales report of Punjab cotton were not available.
There were reports in the market that after the fall in global cotton prices, some mills here are not opening letters of credit for imported cottons purchased earlier. Similarly, raw cotton exporters from Pakistan are not receiving letters of credit for cottons sold earlier at much higher prices.
In view of the above, it is easy to conclude at this juncture that textile business remains mostly disturbed with uncertain utility supplies and very tight working capital. May be some of the weaker or smaller units would be rendered unfunctional and could also go down under due to both local and international business conditions which have deteriorated in a big way.