Record cotton crop depresses prices

It is a foregone conclusion that Pakistan is reaping a record cotton crop this season (August 2011-July 2012). It is presently anticipated that seedcotton for about 14.5 million domestic size lint equivalent bales has already arrived at the ginning factories from which the local mills are estimated to have lifted nearly 12.5 million bales by the first of March, 2012.
Exporters may have picked up nearly one million bales at the beginning of this month while the ginners may be retaining from one million to 1.1 million unsold bales with them in both pressed and loose form. It is estimated that Pakistan may produce a total of 14.5 million to 15 million domestic size bales this season (2011-2012) on an ex-gin basis from which the mills may lift between 14 million to 14.5 million bales. Exporters may ship between one million to 1.5 million bales while mills may import from half a million to one million bales this season.
The domestic cotton market is very weak due to ample supplies, easier tone in the international market and reports from the Chairman of All Pakistan Textile Mills Association (APTMA) Mohsin Aziz that the textile industry is in great difficulty due to shortage of gas and power supply and high charges for doing business since the past year. Chairman APTMA has demanded that a textile package of concessions be given to the domestic industry including remission and rescheduling of bank loans to enable the textile industry to resume its operations on a firm footing.
Due to decrease in domestic cotton prices, seedcotton (Kapas/Phutti) rates have declined by Rs 100 to Rs 150 per 40 Kgs within a week according to the quality. Thus seedcotton prices reportedly ranged from Rs 1,800 to Rs 2,200 per 40 Kgs in Sindh on Thursday, while in the Punjab they are said to have ranged from Rs 1,800 to Rs 2,600 per 40 Kgs in a weak market.
Lint prices decreased by about Rs 200 per maund (37.32 Kgs) within a week. Thus lint prices in Sindh reportedly ranged from Rs 3,700 to RS.5,400 per maund (37.32 Kgs), while in the Punjab they are said to have ranged from Rs 4,200 to Rs 5,500 per maund according to the quality. Lint prices have generally fallen by Rs 500 to Rs 800 per maund within a month according to the quality.
Regarding yarns and textiles, Chinese buying from Paksitan has decreased and Indian buying of coarse counts of yarn from Pakistan has been also reported to have dried up. Thus the textile sector remains dull and drab. Ginners have become keen sellers of cotton but mills are careful buyers. There is a general malaise in the cotton market where it is deemed that the weak macroeconomic position enunciated by American Federal Reserve Chairman Ben Bernanke could further push down general business activity. A stronger United States dollar has dented commodity prices including cotton when earlier during this week there was slight improvement in the US economy and also in the jobs market.
A sale of Rs 400 bales of cotton from Khairpur in Sindh was reported at Rs 5,100 per maund. On the global economic and financial front, the problems and difficulties facing the Eurozone continued to aggravate as no clear and workable mechanism is yet forthcoming to resolve the multifarious issues. Greece is already deemed to have entered into a technical default. It has been projected that unending procrastination and politicking is likely to dump the Eurozone into a double-dip recession this year. This negative development is poised to also pull down the adjoining countries in Europe which are not part of the Eurozone, and sooner rather than later put the entire global economy into an unenviable turmoil.
Deep and difficult economic problems are being faced by the Eurozone which include a fragile banking system, wide scale unemployment and deepening recession in most of the European countries. Only pumping more cheap money into the bank, piling up more sovereign debts and ignoring social needs seem to be the ways and means the European leaders have presently devised to remedy what already appears to be the European s worst economic disaster in memory
A key feature of this week was lending of 530 billion euros by the European Central Bank (ECB) at cheap rates for three years which the banks in the Eurozone grabbed eagerly. Thus within a couple of month s time, more than a trillion dollars have been pumped into the Eurozone banking system allaying any fears by the borrowers that the zone is facing a credit crunch. This is an emergency measure to avoid any rupture in the Eurozone bloc and pump up the equity markets to give the impression that businesses and industrial activity should improve and normalise in the foreseeable future.
However, be that as it may, a more sober and sane warning came from Federal Reserve chairman Ben Bernanke who seemed to say that a few positive signals coming up recently regarding the United States economy should be taken with a pinch of salt. He observed that a stronger and sustained economy in the USA may take much more time to come. Bernanke informed the US Congress that unless economic growth increased at a faster pace, the unemployment situation will remain fraught with gravity.
It was not only Europe or the United States which were emitting depressing economic signals, other regions and countries continued to remain under unprecedented pressure. Japan is sitting over an unprecedented 10 trillion dollars of sovereign debt. India has just reported that its economic growth slumped to 6.1 percent in the three months ending last December (December, 2011), the weakest annual pace of growth since the last three years. It was further reported that the dismal figures showed that the weaknesses in the Indian economy were spreading beyond industry into the services sector.
Thus the equity shares which had put up a positive performance under the impression that Greece would get the required second bailout fund this week sooner reversed into negative territory when Ben Bernanke warned of a lengthy and slow economic recovery than was being earlier anticipated. Besides the US Stocks, the European shares also saw a late sell-off after the tempering remarks of Bernanke. Even Japan s Nikkei average was reported to have ended flat on Wednesday. Even the leading shares in the United Kingdom ended lower on Wednesday when Bernanke cautioned against any quick economic recovery.