Pressure mounts on cotton prices

With early and increasing arrivals of new crop cotton (2010-2011), fiber prices continue to face more pressure. Wholesome monsoon showers over the past week or ten days, particularly in Punjab, are being deemed positive for the growth and development of the new crop. Thus lint prices kept declining this week.
Moreover, quite a large new crop expected in the United States, India Pakistan and elsewhere is also deemed to be a factor to depress domestic lint prices. Furthermore, the uncertainty regarding continuation or otherwise of Regulatory Duty (RD) on yarn exports is also bearish factor on the cotton market.
This month witnessed high volatility in domestic prices. In the beginning of this month, higher class of cottons were being offered around Rs 6,700 to Rs 6,800 per maund (37.32 Kgs), which later rose to record prices ranging between Rs 7,400 to Rs 7,500 per maund. Thereafter, the lint prices kept fluctuating during the second week of this month, but since then the prices have been sliding continuously so that today they range between Rs 5,700 to Rs 5,900 per maund, according to the quality.
This issue of Regulatory duty (RD) on yarn exports has bred uncertainty in the entire cotton trade and industry and needs to be clarified immediately to save the cotton economy of Pakistan from growers to the manufactured textile goods and value added sector from further losses. Clarity on the issue of RD on yarn exports will assist the entire cotton economy to plan for many months ahead regarding their investments, sales and marketing. Therefore, the issue of Regulatory Duty (RD) on yarn exports needs to be resolved immediately.
In this connection, the value added sector is promoting government restrictions and regulation of textile trade and industry which in the past has resulted in serious setbacks to the entire economy of Pakistan. On the other hand, the Pakistan Cotton Forum (PCF), a grouping of growers, ginners, cotton traders, exporters and textile manufacturers have cautioned the government not to allow extension of Regulatory Duty (RD) on yarn exports beyond the 26th of July 2010.
According to media reports, the chairman of the Pakistan Cotton Forum (PCF), Seth Muhammad Akbar, no extension of Regulatory Duty (RD) or any other form of intervention in the free market mechanism of cotton trade and industry will be acceptable beyond July 26, 2010 by the growers, ginners, spinners and the organised value added textile manufacturers. Seth Akbar added that all the stakeholders of the cotton economy are fully vigilant and will not allow the policyholders to bend to the pressure of a section of ancillary industry which has a vested interest.
As the tug of war continues between the growers, ginners, exporters and spinners on the one hand and the value added textile sector on the other hand, cotton trade and industry is suffering immensely due to the volatility and uncertainty it has introduced into the business of cotton, yarn and also exports of sundry textile products.
Thus seedcotton (Kapas/Phutti) prices on Thursday were lower in the range of Rs 2,550 to Rs 2,600 per 40 Kgs in Sindh and between Rs 2,600 to Rs 2,650 per 40 Kgs in the Punjab. Lint prices also suffered so that they ranged between Rs 5,700 to Rs 5,800 per maund in Sindh and in the Punjab they were said to have ranged between Rs 5,800 to Rs 5,900 per maund, according to the quality.
In ready sales, 600 bales of cotton from Sultanabad in Sindh sold at Rs 5,600 per maund (37.32 Kgs), while 400 bales from Tando Adam, 600 bales from Hyderabad and 1200 bales from Shahdadpur, all sold at Rs 5,800 per maund. A notable feature in the ready cotton market is that exporters have started buying and probably current cotton prices are coming close to their parities for shipments abroad.
Depending on the direction of the New York cotton futures (ICE), this step by domestic exporters could impart a modicum of steadiness to the domestic market. Domestic mills, however, were mostly worried throughout this week and some had even curtailed their spinning capacity till cotton arrivals gain further momentum.
On the global economic and financial front, the statement of Federal Reserve Bank Chairman Ben Bernanke that the United States faces "unusual uncertainty" regarding its economic revival was immediately interpreted as signifying continuing weakness of the economy. This observation led many analysts to believe that the much dreaded double dip recession is now a foregone conclusion. This observation thus sent shudders in many equity markets around the world including the Far East, Europe and the United States of America.
Earlier, there was also loss of confidence amongst equity investors in Asia and elsewhere that economy recovery In the United States is slipping again. To add to theses woes, the announcement by Goldman Sachs Group, a leading US Bank, that its quarterly earnings tumbled 82 percent, unnerved many observers.
Furthermore, the plunge in US housing starts to its lowest level in eight months signified that economic recovery in America is losing steam. Also, the Euro fell again against the United States Dollar on fears that some European banks may not pass the stress test being conducted there and also due to the perception that economic recovery is stalling in Europe.