Cotton business remains suspended

Cotton business remained at a virtual standstill for the second week in a row in the domestic market due to continuing imbroglios between the spinners and the value added textile sector after the government imposed regularity duty (RD) on yarn exports on Thursday of previous week. The stiff export duty on yarn exports stunned the spinners who called last Thursday (13 May 2010) a black day in the history of the textile industry of Pakistan.
Unfortunately, the tussle between the spinners and the value-added sector became politicised leaving the overall cotton economy of Pakistan in disarray. In this scheme of things, the Farmers Associates of Pakistan (FAP) as well as the Pakistan Cotton Ginners Association (PCGA) have sided with the All Pakistan Textile Mills Association in condemning the imposition of 15 percent regulatory duty on yarn exports. The Pakistan Yarn Merchants Association (PYMA) have also criticised the government decision to impose regulatory duty on yarn exports.
There may be some substance to the points of view of both the spinners as well as the value-added sector, but venting their views voraciously in print as well as electronic media has created a hype which has taken this drama to a new pitch. Anyhow, there are some positive signs emanating from Islamabad at the weekend indicating that both stakeholders have been summoned to the capital raising hopes that some workable solution to satisfy both the parties is in the offing, perhaps as early as this weekend.
Perhaps, it would be saner if the regulatory duty on yarn exports is removed and an acceptable quantity of yarn exports quota is agreed upon and accepted both by the spinners and the value-added sector enabling the normal resumption of business again, particularly to call off the two-day strikes every week by APTMA which promises to derail the entire cotton economy of Pakistan.
As a consequence of the continuing tiff between the spinners and the value-added sectors, both domestic raw cotton, yarns and fabric prices have suffered seriously. Moreover, there is almost no reported business in the market and the impression is that of dullness and depression of prices in the respective markets.
Cotton prices have gone down considerably and were nominally ranging between Rs 5500 to Rs 6300 per maund (37.32 Kgs), which are at least Rs 300 to Rs 400 per maund lower compared to last week or ten days. Therefore, despite burgeoning lint prices in the domestic Chinese markets and also in other origins supplying cotton, plus on the New York futures market (ICE), domestic cotton prices are suffering considerable decline.
New cotton crop (2010-2011) may be somewhat late in Sindh due to lesser availability of water earlier in the season in such areas as Badin and generally in the south of the province, early sown areas in Punjab such as Arifwalla, Sahiwal, Bahawalnagar or Qabula may roll out pressed bales in some smaller quantities in June 2010. Sanghar in Sindh may also harvest cotton earlier that other parts of the province.
Overall, crop sowing in Pakistan has been very good for the forthcoming season (2010-2011) which many record an increase of 10 to 15 percent over the previous season (2009-2010). Anyway, the overall tone and tenor of both domestic cotton and the textile markets has been quite dull and depressing. A new, and possibly a positive scenario, may only emerge next week when hopefully the rift between the spinners and the value-added sector is bridged heralding the return of a modicum of normalcy in cotton trade and industry.
In addition to the already gloomy picture prevailing on the global economic and financial front, the announcement by Chancellor Angela Merkel that her government had unilaterally banned short selling of several financial products in Germany sent almost all global equity markets into a tail spin. Chancellor Merkel has also warned that if Euro fails, then Europe will fail. She also called for European unity in this regard.
Now we have landed into a situation which truly borders on the disastrous because it is not only Europe which will sink with the Euro, it will inevitably drag the United States economy with it. And if European and American economies continue to shrink, can China, India, Australia, South Korea, Singapore or Latin American countries be far behind? What will happen to The City in London whose prime vocation is to run and promote hedge funds for its daily bread and butter.
Wittingly or unwittingly, Angela Merkel has further accentuated the festering socio-economic and political problems of Greece, Spain, Portugal, Ireland and Italy. We may here also note that United States bank failures have hit a 20 years high water mark this week. Japanese economy kept growing but at a smaller pace than earlier predicted, which was below expectations.
Moreover, the massive oil spill in the Gulf of Mexico has all the ingredients of causing large disruptions in the global economic condition. Also, the divulgence that a naval vessel of South Korea sunk last year was done by North Korea is also creating convulsion in the region. It thus appears that the global economic condition is in dire straits and remains in the doldrums.