Cotton market in a state of animated suspension

The cotton market currently is in a state of animated suspension because on the one hand both domestic and foreign lint prices remain quite strong, while on the other hand trade in Pakistan eagerly awaits the governments policy regarding any restraints or restrictions on yarn exports as per the frantic appeals of the value-added textile sector.
Many meetings have been held by the government officials over the past several weeks with the stakeholders, primarily the spinners and a number of downstream industries to untie the Gordian knot and bring clarity to the textile business so that normal activity in cotton trade and industry resumes again.
The problem seems to be that on the one hand a number of units in the value-added textile sector extending from weavers, knitters, terry cloth makers to bedwear manufacturers, garment, apparel, upholstery and denim producers find current rates of cotton yarn to be too high, particularly of 32 counts and below, which makes their business unremunerative.
On the other hand, spinners claim that several of their manufacturing costs and inputs including power and cotton have shot up prohibitively so that the increase in the price of cotton yarns is a natural corollary to the phenomenal rise in the cost of inputs.
The cost of raw cotton alone has shot up sharply from about Rs 3,300 per maund (37.32 kgs) in July 2009 to nearly Rs 4,750 or Rs 4,800 per maund now. The All Pakistan Textile Mills Association (APTMA) is quite vocal on these issues. In this fray, we must not forget the grower, the weakest link in the chain which starts from the field and ends up in the formulation of fabrics and garments.
According to the Farmers Associates Pakistan (FAP), a strong lobby of the growers, certain vested elements and vested interests are clamouring to have the ex ports of raw cotton and cotton yarn banned. FAP believes that such a step would be detrimental to the interest of the small cotton growers who are the lifeline and the weakest link in the textile chain.
On their part, the Pakistan Cotton Ginners Association (PCGA) contend that a particular lobby is active in demanding a ban on raw cotton and yarn exports which is patently against the concept of free trade mechanism. The PCGA fears that any ban on cotton or yarn exports will result in large losses to the ginners as they have to make huge payments to the growers which may be jeopardised in case of ban in yarn or cotton exports.
As a chain reaction, if the growers do not receive payments against their cotton supplies, the planting of wheat and other crops will be adversely effected. The ginners also contend that ample yarn is available in the market for downstream textile and ancillary industries. It is for the first time that cotton growers are receiving high rates for their seedcotton (kapas/phutti) and any restriction on cotton or yarn will be at the expense of the economic future of the growers.
Therefore the ginners do not want any restrictions on cotton and yarn exports from the country. This imbroglio between the various sectors of the cotton economy of Pakistan has been going on since the past few months and any further procrastination on the part of the government will unnecessarily effect all the stakeholders adversely. According to trade reports, government has already finalised a policy in this regard which is likely to be announced soon, even as early as this week.
The uncertainty in this regard is hampering cotton and textile business which may result in increasing economic and foreign exchange losses, besides breeding further unemployment in the country. The lint market remained between steady to firm on Thursday though a couple of days earlier mills remained reticent about their purchase policy pending government clarification regarding any restrictive policy about cotton and yarn exports.
Cotton costs are also expected to move north not only due to global strength in the market, but also due to the revaluation of the rupee in India, a potential supplier, and devaluation of Pakistan rupee being quoted close to Rupee 85 units against the United States dollar.
General price range of seedcotton (kapas/phutti) in both Sindh and Punjab extended from Rs 2,100 to Rs 2,400 per 40 kgs, while lint prices in both Sindh and Punjab were said to have ranged between Rs 4,550 to Rs 4,750 per maund (37.32 kgs). Earlier in the day lint market appeared calm but later in the evening it portrayed a steady disposition.
Some brokers said that the undertone of the market was firm because the cost of imported cotton could go higher than Rs 5,000 per maund (37.32 kgs). In ready cotton business reported till the evening, 200 bales of cotton from Sanghar in Sindh sold at Rs 4,650 per maund (37.32 kgs), while 200 bales from Nawabshah were said to have been sold at Rs 4,750 per maund but on credit basis.
It is projected that seedcotton (kapas/phutti) arrivals from this season (2009-2010) till the middle of this month (15 January 2010) could be about 12.3 million bales of domestic size from which the mills will have purchased about 10.4 million bales. The exporters are expected to have bought nearly 800,000 bales by that time, leaving nearly 1.3 million bales with the ginners.
Recent projections put the total current seasons (August 2009-July 2010) cotton production to be 13 million or more local size bales while the consumption by the local mills is being counted between 15.25 million to 15.5 million bales. Mills may thus be importing up to three million bales (170 kgs) this season.
On the foreign financial and commodity markets, net gains continued to be recorded this week despite many negative factors. Gains were recorded only in equity and commodity markets including crude oil. Cotton ICE futures also erased last Tuesdays dip and again consolidated on last Wednesday.
It is hard to see how consumer based economies as in Europe and United States can recover while untold millions in the lower and middle class of people do not have the purchase or investment power. Moreover, even the leading economies of the world are now fearing that unbridled and endless borrowing by the various governments must end some time soon.
Moreover, climate change is a major global issue which simply demands that high consuming western societies must consume less, which of course runs counter to the current wisdom that western economies must encourage bigger consumption to sustain or enhance their economic uplift.
Therefore, there is obviously a dilemma because on the one hand prudence dictates that we must live within our means, while on the other hand hitherto traditional spurs to faltering economies had been to consume more, increase public spending and probably initiate wars to prop up the military-industrial complex.
It is now generally believed that global economic recuperation or rebuilding requires new paradigms which entail more equitable and distributive means and methods of income and wealth. In any case, some of the economic and political power now seems to be shifting from Europe and America to newer shores like China, Brazil, India, Australia and in the Pacific region generally. A globally functionable reserve currency may also be in the offing.