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Successive price retreats and delivery of new crop cotton prompted buyers to shed their reservation during last week ended on July 31, 2004.
The piled up old cotton stocks, with no buyers in sight and TCP keeping silent over sellers' attitude, led the ginners to slash price without any let-up. The spot rate last week was sharply quoted down at Rs 2350.
WORLD SCENARIO: A confident University of Missouri think-tank has concluded that cotton growers probably will harvest 18.8 million bales, against USDA's slightly lower level forecast and futures to end the weekly negatively.
The very first session of futures tumbled due to trade and speculative sales to end at 21-month low, with fundamentals remaining defensive for the near term. Ideal growing weather in the US cotton belt and expectations of large crops in other countries have been battering the cotton market with trade and speculative accounts leading the assault on the fibre contracts.
The futures reeled from a fresh bout of speculative fund sales to finish at 21-month low with a poor technical outlook and bearish fundamentals. Traders said futures got pounded anew by speculative fund sales with little in the way of support.
On Wednesday, futures showed muscle to close mixed as near months got a boost from buying by small speculators, but the outlook for the market remained weak. Traders observed that they were expecting good demand later in the year but the trend right now is dearly down.
The strength fizzled out on Thursday as futures crumbled from late speculative and options-related sales to end at a fresh 21-month low.
On the fundamental front, analysts said cotton will stay under pressure due to expectations of a bumper crop in the United States.
The last day of the week futures ended firmer as trade fixation buying hoisted cotton from fresh lifetime lows as the market seemed poised to an extend recovery.
LOCAL TRADING: Signs were above board with regular buying that pace will improve with all new cotton being put on sale. Naturally, prices kept coming down on regular basis.
The ginners, victim of pessimism as no help could be in sight to lift nearly 350,000 bales lying in the ginneries, were trying to trap spinners by reducing prices but buyers did not show that they were inclined to lift any lot on sale.
The spot rate began at Rs 2475 but was at Rs 2400 on Friday. The new crop is likely to attract spinners as their attitude has already been adequately answered.
On the first day some trading was seen. The prices were on the lower side between Rs 2450 and Rs 2600. Though TCP did not show any interest in ginners' plea, it played psychologically on the buyers.
On the second day fresh deals were mixed up with deals on previous day. The spot rate kept firm for the day at Rs 2475.
The sellers changed trading and only Sindh types were offered which were acceptable for primarily price factor. Some deals were noted at price between Rs 2425 and Rs 2125.
On Thursday some fresh deals were noted at prices between Rs 2300 and Rs 2400, due to quality reason. One deal was in new crop cotton. Another reduction of Rs 25 in spot rate was decided by the hard pressed ginners.
The new crop which had started trickling over a fortnight back bulged to be traded on its own. There were four deals, all being in new crop. They changed hands at slightly below spot rate between Rs 2325 and Rs 2375. The spot rate was down by another Rs 25 to Rs 2400.
On Saturday again all six deals were from Sindh and new crop. Spot rate was down Rs 50 to Rs 2350. Current crop is still to find buyers for piled up nearly 350,000 bales.
PROBE DESIRED: The ginners, who for any unspecified reason have accumulated over 300,000 bales of cotton, have called for determining how much cotton exactly spinners need to 1) feed their mills and 2) meet export purposes. They have claimed that spinners and textile millers have in their inventories some 2,056,000 bales.
They also alleged that another 1.6 million bales were in the pipeline. The ginners under these circumstances fear that the fate of 350,000 bales lying in ginneries is bound to be doomed.
The spinners and textile millers have been showing uneasiness over "high cotton prices." The yarn and cloth are also not getting easy outflow, they say. The WTO leaders--America, Europe and the G-9 countries--appear non-conciliatory and even experts openly say if they on July 27, 2004 Geneva meeting, years will be required to bring the WTO back on track. Or, as has been planned, January 1, 2005 is not too far to feel relaxed.
Meanwhile, knowledgeable circles favour an end to such hue and cry by one or the other major players every year who try to be victims of one or the other kind. They are pretty sanguine in saying why spinners avoid regular cotton buying and why ginners are left with huge quantities of cotton and their clients nag about high prices.
There are a number of other issues, they said, which have simply failed to do justice with the govt exchequer.
They cited various taxes are not being paid in full, over-invoicing and under-invoicing, Customs duty, and duty drawback, and of course, sudden change in the quantity of cotton bales.
FATHOMING TRUE POTENTIAL: The export earnings at $8 billion, more or less, and contribution of textile exports have been highlighted to impress the laymen, knowledgeable circles while commenting on the figures discussed in a recent report. But how meagre it appears where compared to countries who hardly grow any cotton and depend on cotton and yarn imports and still earn much more than Pakistan.
One such country is South Korea, they said. It is not to contest any fact, but just to enlighten people how much they should really feel obliged and benefited on imports of reportedly 2 million bales for consumption during 2004-05. Should it not be fair that somebody works out the cost of imported cotton and export earning from textile products.
Also, indeed, it is fair that all concerned know the labour and money invested by farmers on growing cotton crop.
The officials quite often repeat the advice to textile and garment sectors to avoid highlighting contribution of low count yarn and grey cloth etc.
According to figures textile and garments exported 8.302 billion dollars goods, which comes to 68 percent of total exports. To add further total exports increased by 8.44 million dollars or 11.3 percent higher over the real potential of the textile and garment sector.
So far low count yarn had been a major contributory factor in exports. But what one pound of raw material cotton and semi-raw material low count yarn fetches, if the same quantity is added with value the same would earn eight to 10 dollars more. If yarn continues to contribute, as at present, the export target will look at 10 billion dollars or 13.7 billion dollars ambitions. It is high time that value-addition is given due importance.
The ambitious target will look like anything but ambitious. The bet is that exporters and authorities give a trying hand!
TAIL PIECE: The textile exporters probably had never had such bad news as the now imminent delay in elimination of quotas from January 1, 2005.
According to a report the decision to remove quotas was part of the Moroccan agreement ending the Uruguay Round of negotiations at the end of 1994.
The Agreement on Textile and Clothing (ATC) included phasing out of textile quotas by the US, EU and Canada.
However, according to many would-be-victims contacted it was quite expected and all on account of subsidies to the US and EU farmers which had to be eliminated by the end of the current year. Details, next week!

Copyright Business Recorder, 2004

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