The latest cotton arrival figures indicate that harvesting of a good crop of 13.0 million bales now appears quite realistic. The other day, the Chairman of Pakistan Cotton Ginners' Association said that there could be a crop of 13.0 million bales cotton this year.
By December 15, total arrivals of seed-cotton in the ginneries were equivalent of 10,419,348 bales, against 11,745,333 bales of last year. The shortfall was 11.29 percent, while a fortnight ago it was 12.96 percent. The total unsold cotton figures are historically high (28.11 percent) at 2,928,783 bales.
Trade circles think that last fortnight, to keep the prices up, unsold stocks were shown less by around 300,000 bales. The speed of disposal of lint cotton appears quite slow.
By including unsold stocks of 300,000 bales of lint cotton held by Trading Corporation of Pakistan, total unsold stocks swell to 3,228,783 bales - 30.99 percent of total arrivals. In the coming fortnights, the quantum of unsold cotton may further increase on deterioration in quality of coming cotton.
This situation of larger unsold stocks is worrying the ginners. The idea of low cotton crop, of around 11.0 to 11.5 million bales, which was floated by the growers in the beginning of the season, seems to have trapped the ginners, who paid high price of seed-cotton - around Rs 1,100 per 40 kg ex-gin - against government's minimum support price of Rs 975.
Spinners had not accepted the idea of low cotton production and kept cotton buying operation at low profile, but above the export price level. In the meantime, they continued booking foreign cotton, which is now estimated at around 1.2 million bales, and may go up to 1.8 million bales by the close of the season.
The spinners also purchased some one million bales of raw cotton from TCP in this season. The carry-forward stocks of this season were quite high - around 35 percent more than last year.
Yarn market is weak. One spinner said that in the past, when some 3000-4,000 bags of yarn were accumulated they used to become quite disturbed, but now unsold yarn stocks have trebled and they cannot do anything. Recently, the spinners sent their managers to Hong Kong for selling yarn when WTO meeting was held here, but they returned without any success.
The calendar year 2005 is drawing to close and tight liquidity position would be further squeezed. Payments against local yarn sales are not coming in view of liquidity crunch. New York cotton market is not picking up, rather it has come down. World cotton supply position is quite comfortable.
Law and order situation in the country may be disturbed on Kalabagh dam issue. All these factors indicate a likely cotton crisis, that might adversely affect cotton prices even beyond expectations.
The ginners should try to ease out their long position. At present, lint cotton stocks cost them around Rs 2,400 per maund of 37.324 kg ex-gin. So they resist selling at below this level, but they have no alternative but to book least losses and get out of this situation.
Some ginners in Punjab are almost keeping all their production in tact in the hope of selling at prices around Rs 2500 and above. In previous years, when production was low, larger unsold stocks reduced the prices to very low levels causing heavy losses to ginners and defaults in payments to growers and banks.
The Cotton Crop Assessment Committee is meeting on Monday, December, 19, to assess cotton crop in view of latest developments. Initially, the government had fixed production target of 15 million bales but later on, it reduced its target to 12.5 million bales. Moderate trade circles now assess cotton crop size around 13.0 million bales.
Market reports indicate that TCP may offer for sale its unsold stocks to exporters and perhaps to local spinners next month.
Fire lost 100 bales when it broke out in TCP's Pipri warehouse about a week ago. Previously also, in the same warehouse, two fire incidents were reported. The TCP has ordered departmental inquiry for the recent case of fire incidence. Unfortunately, no departmental inquiry was ordered when more than 40,000 bales of cotton valuing Rs 400 millions were lost/ damaged in two consecutive fires in TCP warehouses in Akramabad-Rahimyarkhan this season. Concerned trade circles had cast doubts about any possible mischief in this fire.
Again, there are reports of procurement of some 100,000 bales of contamination-free cotton from some specified ginneries through TCP. As a matter of fact, contamination consists of two matters. One is cotton plant trash (plant foliage); and the other is foreign matter such as jute-strings, cotton-pieces, plastic-pieces, propylene-pieces, candy/sweet/chocolate/toffee and any matter other than plant foliage. Contamination by foreign matter is highly undesirable and can only be reduced if picking, storing, transporting, warehousing and all other cotton handling systems are improved or changed.
Trash is part and parcel of cotton and it is practically not possible to get lint cotton all free of trash in commercial quantity. For reducing trash percentage in cotton, grading system at the ginning stage is a must. The price mechanism should be based on 'Premium' for better grade cotton, and 'Discount' for lower grade cotton. This is an internationally accepted system applied by almost all cotton producing countries.
We do have this system, but its implementation is lacking despite Presidential Order issued some three years ago. We have mixed up the problem of contamination in cotton.
As per All Pakistan Textile Mills Association (Aptma) report, Pakistan has to sustain total loss of $1.4 billion every year on account of both types of contamination. If the Cotton Grading System is implemented at ginning stage throughout the country, the growers would get some Rs 3-4 billion over and above the cost of cotton and quality of our lint cotton would be upgraded to international standards. It is high time that all cotton stakeholders such as Growers, Ginners, Spinners, Exporters, concerned Government agencies should take bold decisions to implement the Presidential Orders in the best interest of our economy and the public at large.
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