President Zardari has spoken. "The government will not interfere with the free market mechanism, and cotton and yarn prices in the local market must be left to forces of demand and supply," Mirza Ikhtiar Baig, Advisor to the Ministry of Industries for Textile, told BR Research, citing the outcome of his meeting with the President.
Its uncertain if the government will adopt a similar stance with regard to other commodities, but knowing the presidents clout over the government, one can be assured that for the cotton and textile industry, free market is the way forward.
From now on, according to Baig, cotton and yarn prices in Tando Adam will match those in international markets.
In New York, cotton prices landed at another peak of $1.36 per lb this week - more than double over last year - and the market expects further upside over the next few weeks after the US Feds decision to go for another round of quantitative easing.
Here at home, prices have followed a similar trend - rising to Rs8500 per maund this week, from Rs3775 in earlier November 2009. Given the likely rise in global markets, amid a free market mechanism as reportedly asserted by the president, local prices are expected to surge further over the next two years.
"World cotton production is unlikely to catch up with consumption for at least two years," a cotton analyst with the US-based First Capital Group told New York Times at the start of this month. It resonates the view of Gohar Ejaz, chairman APTMA, who sees international cotton prices staying tight in the coming months, expecting a breather below the current price level, only after July 2011.
In such a scenario, perhaps domestic downstream producers must learn new ways to compete, because their competitors in the global market, who also face a similar price hike, are already trying to find their feet in an expensive cotton world.
Recent foreign media reports suggest that the value-added textile producers are finding new ways to mitigate the impact of higher prices by cost-cutting tactics. These measures include alternative material mix, like synthetic linings, smaller buttons, more polyester, amidst other operational efficiencies.
But while rising cotton prices may mean $4 billion worth of additional export revenues, which will translate into Rs240 billion of additional income to cotton farmers, according to Ejaz - for inflation controllers, it may be a cause for concern.
Racing cotton, higher energy tariff, and the impact of RGST, if it is implemented by January, will stoke the textile and apparel component of the CPI basket. And for consumers this means that clothing will be invariably getting expensive, doesn matter if one belongs to the T-shirt or the kurta class.
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