Local cotton prices stable, world rates easy

On Friday, November 19, the Pakistan Cotton Ginners' Association (PCGA) released its periodic seed-cotton arrivals and disposal report up to November 15, 2004. According to this report, in the fortnight ended November 15, 2004, seed-cotton equivalent to 1,892,528 bales was received against 2,644,752 bales received in the previous fortnight - the highest in cotton history of Pakistan. The decrease was due to week-long Eid holidays which affected cotton arrivals adversely.
However, season's total arrivals of seed-cotton received in the ginning factories were 8,151,097 bales, against last season's total 5,669,593 bales. Based on these figures cotton trade understand that peak of cotton arrivals has gone and now there would be decline in coming fortnights arrivals. It is estimated that by the end of this month, total cotton arrivals would reach around 10.0 million local bales and in December and thereafter seed-cotton equivalent to some 3.0 million bales would be arriving, closing this season with around 13.0 million bales.
As per this PCGA's report, spinning mills purchased 6,820,214 bales, against 4,886,159 bales purchased in same period of last season (increase 39.58 percent). This report mentioned unsold stocks at 2,000,230 bales, against 1,483,195 bales of same time last year (increase is 34.86 percent).
Presently, about 2/3rd of unsold stocks consist of unginned cotton while only 1/3rd is in pressed bales. When this ratio would be reversed, by middle of December, then selling pressure on lint cotton prices may increase and prices may fall further.
As the government is giving stress on wheat growing growers would clean up their fields of cotton sticks before the start of new year and cultivate wheat by the end of December.
Thus, very little cotton would be left in the fields after December and this phenomena would restrict cotton arrivals after December. month. If, on average, one maund of seed-cotton is lost on each acre under cotton, about 6.0 million bales would be lost.
The latest PCGA report shows increase of 43.77 percent over same period of last year on national basis, with 39.19 percent in Punjab and 62.77percent in Sindh. The overall increase is expected to come down to 30 percent by the close of the season and thus final output may be around 13.0 million bales.
Local consumption is estimated around 13.5 million bales and we may import about 800,000 to 900,000 bales to make up quality and quantity shortfall.
Exports may go up to 400,000 bales, of which about 225,000 bales have already been committed. Trading Corporation of Pakistan is reported to have made total purchase contracts of over 800,000 bales at the fixed rate of Rs 2,159 per maund ex-gin (=43.73 cents /lb) to ensure Minimum Support Price (MSP) of Rs 925 per 40 kg to the growers. Unfortunately, growers are not getting MSP but the ginners are getting it.
However, seed-cotton and lint cotton prices might have gone even lower if the Government had not intervened. In the absence of any monitoring/vigilance system in TCP, specially in purchase operations and in payments, the ginners have lot of complaints about undue delay and corruption.
The competency and efficiency of field workers is said to be well below required level. The TCP should have a separate 'Cotton Department' run by experienced and qualified cotton professionals instead of hiring raw and unqualified people on ad hoc basis, and devise a workable grower/ginner-friendly system which could deliver correctly.
TCP has sold 5,000 bales at 41.55 cents and another 5,000 bales of Grade III staple 1-1/16 inches cotton at 42.0 cents /lb FOB Karachi through its first international tender of this season. Next Tender may be floated by the end of this month.
There is no doubt that TCP is losing money on export sales but it appears quite expedient in the interest of cotton economy.
Cotton prices in local market remained steady but on last day of the week prices softened by Rs 50 per maund on reports of larger cotton arrivals. Better quality cotton of prime cotton areas of Punjab and Upper Sindh was selling at Rs 1,950 to Rs 1,975 per maund while average grade cotton was selling around Rs 1,900, and lower grade at Rs 1,850 per maund.
Exporters and spinners were in the market but were selective in deliveries. Prices may accept some pressure when unsold stocks of pressed cotton bales swell to over 1.5 million bales by the end of December. However, comparatively high TCP lint rate of Rs 2,159 per maund would resist any meaningful fall in lint prices.
International cotton market is still looking for any definite direction in next couple of months. Last week, there was a volley of buying spree in the retiring December contract which improved by 3.49 cents to settle at 47.83 cent a pound, while March contract finished at 43.28 cents marginally improving by 43 C/Pts. When December contract will go off the board on December 9 only then the market may find some direction.
Last week, US announced its monthly global estimates of cotton. It increased global production estimates for this season to new high of 111.7 million bales of 480 lb, increasing by 2.1 million bales over October estimates, and 17.0 million bales over last year.
However, global mill use was also increased to 102.9 million bales over last year's estimates of 98.5 million bales. US has committed 6.790 million bales in exports including 354,000 bales of Pima cotton.
Prominent buyers are Mexico 1,393,000 bales, Turkey 776,000, Indonesia 768,000, China 571,000, Thailand 498,000, Korea Rep 483,000, Pakistan 304,000, Canada 270,000, Japan 245,000 and Taiwan 236,000 bales.
It has achieved over 55 percent of its export target of 12.0 million bales and now the selling momentum has slowed due to slackness, specially from China.
According to a report, global growth in economy in 2005 is likely to slow down to 4.3 percent from 5.0 percent of last year due to high oil prices, global inflation pressure, hike in US interest rate, unbalanced and weak domestic demand in euro zone and slow down in some Asian economies, specially China.
Mill use of cotton in China is expected to go to 36.0 million bales this season in view of strong production of cotton yarn.
In the period August-October, yarn production increased by 2.87 million tons, up 18 percent. In 2003-04, due to high cotton prices in the second half of the season and competition from MMF, mill use was reduced to 32.0 million bales. China has changed its cotton buying strategy this season to avail of the low cotton prices.
Here is the table of US cotton estimates which would give good idea to the readers to guess the trend of the market.

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USA November, 2004 Global Cotton Estimates (million bales of 480 lb)

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Stocks   Beg.Stock   Production   Imports   Mill-use   Exports   End.

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World        35.5       111.7       32.5      102.9      32.2    44.6

USA           3.5        22.5        0.0        6.1      12.5     7.5

China         7.8        29.5        7.8       36.0       0.2     8.9

Pakistan      2.0         9.3        1.6       10.0       0.3     2.6

India         4.1        14.2        0.8       14.2       0.4     4.5

Central Asia  1.7         7.9        0.0        2.0       5.5     2.2

Australia     0.9         2.3        0.0        0.1       1.7     1.5

Brazil        4.6         5.9        0.4        4.0       2.0     5.0

Indonesia     0.4         0.0        2.3        2.2       0.0     0.4

Selected Asia 1.9         0.2       10.4        8.2       0.1     2.1

Mexico        1.1         0.6        1.5        1.9       0.2     1.0

Turkey        1.3         4.3        2.3        6.2       0.3     1.4

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