Cotton prices tighten again

After a transitory dip of about Rs 25 per maund (37.32 kgs) on last Monday, lint prices have rebounded and gained by Rs 25 to Rs 50 per maund. Fears of draught in Pakistan this summer and depleting ready stocks in the market have hardened cotton prices, particularly those of higher quality.
Different reports in media in recent weeks have been warning of a severe draught in Pakistan this year, but other reports indicate that there is still enough time and the picture is not so gloomy. Thus arrivals and storage of water in the country's two reservoirs/dams, namely Tarbela and Mangla, and receipt of timely rains can still be expected to provide normal quantities of water leading to good chances of a normal cotton crop in the forth coming season (2006-07).
A positive feature in Pakistan's textile business relates to its good sale of cotton yarns to China. According to a recent report by Globecot, Pakistan has been a top supplier of cotton yarn to China. In fact, nearly 50 percent of its total yarn export went to China during the last year (2005) and even more yarns are expected to go from Pakistan to China during 2006. It may be noted that because China has become a large importer of cotton yarns, Pakistan is exporting very large quantities of yarns to China in fact, yarn exports from Pakistan to China are increasing rapidly.
With this situation, spinners in Pakistan are bound to increase their cotton consumption which can become 16 or 17 million bales (170 kgs) to enable it to meet its fibre requirements for producing larger quantities of yarns. Exports of other textile products are keeping pace in Pakistan though the industry circles continue to complain of high input costs. Higher input costs in the domestic textile industry give more edge to the competitors like India, Bangladesh and China.
During its last tender and after subsequent negotiations with the buyers, the Trading Corporation of Pakistan (TCP) sold 34,000 bales out of its stock of 161,000 bales, thus leaving an unsold stock of 127,000 bales. The TCP has issued another tender for the sale of 30,000 bales of various types and qualities of cotton for which bids have been invited by the 16th of May. If this quantity is also sold out, then the TCP will have only 97,000 bales left unsold from its stock of cotton from the 2004-05 season.
Till Thursday afternoon, 1800 bales of cotton from Daharki (upper Sindh) were reportedly sold at Rs 2460 per maund (37.323 kgs); 2000 bales from Sadiqabad in Punjab sold at Rs 2425 per maund; 2300 bales from different Punjab stations sold at Rs 2475 per maund, while 400 bales from Makhdum Rashid (near Multan), 1000 bales from Multan and 8000 bales from Jahania, all sold at Rs 2500 per maund. Later in the evening, though some ginners were asking Rs 2500 per maund for their better lots of cotton, others were eyeing for even higher rates for their lint.
Thus the price situation of cotton in Pakistan has become overtly weather - related. Already the new crop (2006-07) sowing is late by two or three weeks. Moreover, plants in cotton belt in Sindh are said to be wilting due to intense heat following higher temperatures close to 45 degrees celsius. Any additional problem due to inclement weather could disturb the spinners as far as timely arrival of the domestic new crop (2006-07) is concerned.
The government has fixed the target for the next season (2006-07) in Pakistan at 3.25 million hectares. This converts into an ex-farm production of 13,820,000 bales (170 kgs). With increase in support price of seedcotton to Rs 1025 per 40 kgs for the growers, this target of cotton output is achievable under normal circumstances.
In the evening it was reported that exporters sold 3000 bales of average grade cotton from Punjab to the mills at Rs 2425 per maund. The general outlook for cotton prices ranged from steady to strong.