Prices plunged on the domestic cotton market this week as global fiber values weekend, few appeared willing to buy yarns, world-wide economic condition worsened and more supply and surpluses of cotton entered the market.
Moreover, the overdue large correctional factor occurred in recent weeks when frontal month price of cotton which had reached unprecedented heights some time in the second week of March 2011 reported at 227 Cents per pound on the New York cotton futures exchange (ICE) fell sharply in recent sessions to US Cents 113.42 per pound for the benchmark December, 2011 contract which settled on July 6, 2011.
Taking cue for these bearish developments, ready cotton prices took a tailspin over the last several sessions and then undertook a dramatic free fall this week. Most of old crop (2010-2011) has disappeared from the Market. Brokers said in Karachi that domestic seedcotton (Kapas/Phutti) prices of the new crop (2011-2012) have fallen by about Rs 1,000 per 40 Kgs during the last ten days in both Sindh and Punjab while lint prices in both the provinces have nearly decreased by Rs 2,300 per maund (37.32 Kgs) over the same period. Similarly, cotton waste prices are also said to have fallen sharply over the past couple of weeks.
Brokers said on Thursday that new crop (2011-2012) seedcotton prices in Sindh ranged from Rs 2,500 to Rs 2,950 per 40 Kgs while in the Punjab they stretched from Rs 2,500 to Rs 2,900 per 40 Kgs. Karachi traders said that about eight ginning factories in Sindh are processing the new crop cotton, while in the Punjab nearly 50 factories are pressing the new crop lint. Ginned cotton from Sindh reportedly sold from Rs 6,700 to Rs 6,900 per maund (37.32 Kgs), while in the Punjab it was selling from Rs 6,500 to Rs 6,800/Rs 6,900 per maund as per quality.
On Thursday, ready sales of new cotton crop (2011-2012) in Sindh comprised of 400 bales of cotton each from Shahdadpur and Sanghar at Rs 6,700 per maund (37.32 Kgs), while 400 bales from Hyderabad sold at Rs 6,800 per maund and another 400 bales also from Hyderabad sold at Rs 6,900 per maund.
Earlier, 400 bales of cotton from Rajanpur in Punjab had sold at Rs 6,500 per maund, while later 200 bales from Pakpattan were said to have been sold at Rs 6,800 per maund and 200 bales from Burewalla reportedly sold at Rs 6,900 per maund in a continually weak market.
Several traders are continually banking for a new crop (2011-2012) output of more than 15 million domestic size bales if weather remains clement. On a conservative basis, lint output ex-gin could range between 13.5 million to 14 million local size bales ex-gin for the new season. Mills consumption may range from 14 million to 15 million bales. Exports could be between one million to 1.5 million bales, while the imports by mills may range between one million to two million bales.
Gas and power shortages continue to plague the industry in Pakistan. However, some of the mills who have captive power plants and the financial wherewithal may work in relatively better conditions. In summarising of the cotton part of this report we may add that the continuously deteriorating global economic situation, particularly now that Portugal's finances have been relegated to "junk" status, we are bound to cut down cotton consumption. Consumers may spend more on food and education rather than clothing themselves with new apparels.
On the global economic and financial front, the health of the world economies and the financial system continued their unmistakable downdrift this week. Rampant unemployment in most of the countries coupled with intolerable inflation took their terrible toll. While the peripheral Eurozone countries continued to wallow in a morass of high indebtedness tantamount to essential defaults, even the United States of America and Japan remained worried about their unmanageable private and public borrowings.
The newly elected president of the International Monetary Fund (IMF), Christine Lagarde, minced no words as she took office this week. Lagarde observed that though the global economy continues to move on a positive plane, but she conceded that several issues and concerns remain before the global economy can be put on a sound footing. She added that the global economy remains unbalanced. Thus the balancing act proposed by the IMF may take time to stabilise the global economy. Lagarde also desired that the working of the IMF should be made more credible.
While Greece, Spain, Ireland and Iceland remain under pressure and are still in the fiscal doldrums, the rating agency Moody's has downgraded Portugal's rating to the "Junk" level dropping it by four notches. It may be added here that Eurozone politicians have slammed rating agencies for their alleged anti-European bias after Moody's downgraded Portugal's debt as "junk"
Fresh data from the United States indicated that the services sector grew slower than anticipated in the month of June as compared to the earlier month of May, 2011. Reports from America added that politicians on both sides of the benches continued to argue and wrangle over the issue of increasing the borrowing limit of the US government beyond the presently permissible level of US Dollars 14.3 trillions. Shortage of funds has put USA in a difficult position.
In the meantime, the European Central Bank prepared this week to increase the lending rates in the Eurozone to control runaway inflation. Thus the Eurozone may be working at cross-purposes. On the one hand, the single currency zone wants to dish out more doleouts to the floundering economics of Greece, Portugal, Spain and possibly Italy and Belgium to pull up the economies. On the other hand, it wants to increase the lending rates of the banks in the zone to slowdown the respective economies. This is a catch-22 situation which appears to suggest that Eurozone may be suffering from stagflation.
Then there are reports that those banks in China who have lent to producers of agriculture products are facing difficulty. Reports state that a rating agency has said those banks who have leant money to the agriculture sector in China have been weakened.
Another fearful development is the reported water shortage problem in the Horn of Africa including such countries as Ethiopia, Somalia, Kenya and Sudan. These countries are facing their worst drought in sixty years which is badly hurting the food supply in the region and is approaching a calamity level which is resulting in mass deprivation and untold number of deaths. The famine now enveloping the Horn of Africa is likely to travel to other parts of Africa and could conceivably engulf the entire continent.
Australian bank shares prices came for a pruning when news of Portugal's "junk" status as declared by Moody's spread around the world. These developments clearly show that the global economic condition is far from being stable. Indeed, it is declining deeper into unprecedented depths.
Added to the continuing economic and financial woes which have spread widely around the world as never before, the continuing warfare, uprisings and insurgencies, social conflicts, nationalist movements and social discontent stretching from the Asian subcontinent including India, Pakistan, Bangladesh and Afghanistan to North Africa, the Middle East and Central Asia, all seem to portent the demise of the existing socio-political order. However, we do not know what the new world order or worldview will be in the absence of any proposed ideology or political thought. Till then we may wallow in a slough of despondency and continue to suffer unwarranted death, deprivation and destruction.
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