Cotton prices rose to record levels for this season (2006-07) when 4,000 bales of prime quality of lint from Rahimyar Khan in Punjab sold at Rs 2800 per maund (37.32 kgs) which is the highest price obtained by the ginners this year.
This week considerable quantities of cotton have been sold between Rs 2700 and Rs 2750 per maund which price later reached the apogee of Rs 2800 per maund for this season.
With less than 600,000 bales of lint left unsold with the ginners from this season (2006-07), out of which only about 100,000 bales could be of average or better grade, chances for further increase in cotton prices for the higher quality remain patently strong.
Physical cotton prices remain high at most origins abroad, including India where a notable revaluation of the rupee has made exports dearer. Willy nilly, spinners in Pakistan are likely to pick up as much of local stock of cotton which they can. Enquiries for imported cottons have nevertheless reported to have increased with the shippers.
Some mills are covering cotton in the hope that sooner or later the yarn prices should go up in case the cotton prices rise further. Presently, for several spinners in Pakistan yarn prices are mostly unremunerative even though the bigger mills may have no yarn to sell because of their better performance in manufacturing and more efficient sales activity in the foreign markets.
With some ginners targeting a price of Rs 3000 per maund (37.32 kgs) for the choice class of cotton which they still retain in moderate quantities, such a rise in lint price remains a perpetual possibility, even though in a world of speculation.
However, with the increase in the number of mills in recent years, particularly the spinning sector which suffers from overcapacity in Pakistan, operating losses continue to burden the textile industry.
On a tangential note, one may say that no relief by way of a much publicised "textile package" appears on the horizon, even though we cannot rule out such a programme being announced in the foreseeable future. The forthcoming federal budget which is likely to be announced in May or June 2007 may provide the necessary relief to the textile industry which apparently suffers disadvantages compared to its competitors who reportedly enjoy several government subsidies and other benefits.
Be that as it may, a technically tight situation has emerged in our market with depleting domestic stocks resulting in increase of price on the one hand, and higher asking prices for most foreign origins on the other. However, spinners may yet obtain cotton at the ruling prices because some of the ginners may want to offload their remaining stocks to either book their profits or avoid possible risk of any drop in prices when they may have to face further carrying charges.
The liquidity position in Pakistan is very tight in the market where cost of carrying cotton for longer periods of time may become difficult. Moreover, there is ample water for the sowing of the next cotton season (2007-08). The sowing for the next crop may be late by two or three weeks, but growers enthusiasm promises a good output provided the weather remains conducive.
Some sowing of the new crop (2007-08) has started in such areas of lower Sindh like Tharparkar and Badin, while sowing in Mirpurkhas is likely to begin over the next couple of weeks. Sowing is also being made in such Punjab stations as Sahiwal, Burewalla and Chichawatni.
In view of the tightness of cotton prices, the Karachi Cotton Association (KCA) also pushed up its ex-gin price of Grade 3 cotton by Rs 50 and posted it at Rs 2650 per maund (37.32 kgs) on Thursday which is the highest for this season. Reported turnover in the ready market remains moderate as the ginners have increased their asking prices and are only selling sparingly.
It seems that the cotton prices are in the grip of a bullish psychology and increases in lint values are considered inevitable. Despite political problems where lawyers and other sections of society are protesting regularly against the suspension of Chief Justice of Pakistan Iftikhar Mohammad Chaudhary, cotton prices are moving upward in a one way traffic due to short supply and increased demand in the market.
In this situation, there are also some reports that a few textile mills are either closing down or reducing their yarn output. Thereby, these mills are also said to be selling cotton in the market which they had acquired earlier for their own use.
It seems that the long term solution for the ailment of the Pakistan textile industry and its export programme lies both in diversification of its sale destinations and also the increase in the variety and value of its exports.
In ready business reported on Thursday, 200 bales of cotton each from Hyderabad, Sarari and Khadro in Sindh sold at Rs 2750 per maund (37.32 kgs), while in Punjab 200 bales each from Lodhran and Jahanian also sold at Rs 2750 per maund.
In the evening, an unverified sale report of 500 bales of cotton from Shahdadpur in Sindh was being floated in the market at Rs 2850 per maund (37.32 kgs) for which delivery was stipulated in Karachi. Anyhow, the tone of cotton price continued to remain firm in the evening. This reported development of sale at Rs 2850 per maund introduced an element of panic in the market where a number of mills which produce good quality of textiles wondered how they will find enough cotton at workable rates for the rest of the season. Cotton prices were reported to be very firm in the market.
From the report of seedcotton arrivals issued by the Pakistan Cotton Ginners Association (PCGA) for the current crop (2006-07) till the 1st of April 2007, it may be deduced that the total annual output of lint in the country would be nearly 12.4 million bales (170 kgs) on an ex-gin basis which is about the same as last year (2005-06).
On the one hand, India is reported to have captured more share for its yarns in the global markets, while on the other hand the Pakistani spinners find that demand for its yarns is subdued and muted.
Prices in the pit on the New York cotton futures market remained firm on last Wednesday for the frontal months, depicting a continuation of its consolidation activity. The May 2007 delivery settled at US cents 53.26 per pound (up by 21 points), the July 2007 delivery closed for the session at US cents 54.74 per pound (up by 30 points), while the October 2007 delivery ended the day at US cents 57.40 per pound (up by 40 points). Positive trade buying and switch activity helped to maintain the prices. Cotton futures market in New York will remain closed on Friday due to Easter.
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