Cotton activities remained suspended almost throughout the week due to Eid-ul Azha festival in this month. As such, arrival of seed-cotton in ginneries remained restricted. Cotton arrival report for the first fortnight of November-11, is due in this week and as per trade circle estimate up to date seed-cotton arrivals may be between 8.2 and 8.5 million local weight bales.
Mill buying and cotton lifting in the week remained low on reports of poor logistic facilities due to Eid holidays. As such, the unsold stocks, which stood at 1.8 million bales on 1st November-11, may inflate to over 2.0 million bales by the end of this fortnight. Latest upcountry reports estimate this cotton crop between 13.5 and 14.0 million local weight bales against 11.6 million bales produced last season. As regards domestic cotton consumption, concerned trade circles estimate it almost equal to the production level of 13.5 -14.0 million bales.
During this season, our cotton exports may be between 500,000-700,000 bales and seasonal imports equivalent of 1.0 and 1.3 million 170-Kg bales. During the last week, cotton market remained depressed on poor buying interest due to Eid festival mood which lasted about eight days (Friday to Friday, from 4th to 11th November-11) and prices remained under selling pressure. Sindh style cotton which was rain-damaged was sold as low as Rs 3,800 per maund of 37.324 Kg ex-gin while Punjab's better grade cotton was selling up to Rs 5,700 per maund ex-gin. Also in Sindh quality difference is very high up to Rs 1,500. Upper Sindh better quality lots were selling between Rs 5,200 and 5,400 per maund. In fact, the mixing of rain damaged cotton with sound cotton has made the select ion of cotton very difficult as some time it is not reflected in sample test-results. Last week, the exporters were also active buyers of comparatively low grades of Sindh which they bought between Rs 3,800 and 4,600 per maund, perhaps for shipments to China and Thailand.
Pakistani exporters are reported to have registered their export contracts covering over 200,000 bales. As a matter of fact, generally, the economic and business conditions of prominent cotton consuming countries especially which entirely dependent on imported cotton, was weak because they had purchased cotton at very high rates which decreased sharply within a few months period. These mills were stuck with large stocks of yarn produced from such high priced cotton. Not only the mills, but the banks also suffered heavily as the values of pledged stocks were reduced drastically beyond their advances. In many countries especially in Asia, spinning mills have not as yet recovered from such conditions. There was great number of defaults in performance of cotton contracts either on the part of buyers or on the part of sellers because of wide fluctuations in cotton prices. Almost globally, the whole textile sectors along with related banking sectors were shocked which have adversely affected their operational capabilities and capacities. Resultantly, retail store inventories are likely to be reduced reducing retail store sales on the occasions of Christmas and New Year celebrations.
Although, prospects of textile business conditions in Pakistan may be countered by adverse working conditions such as deep power crisis, gas loadshedding in winter, increase in power rates, deteriorating law and order, frequent political demonstrations and gatherings, poor logistic facilities and financial crunch but there are two good news for Pakistan economy especially textile sector. Firstly, trade relations between Pakistan and India would increase considerably as a result of some trade agreements and allowing the status of Most Favoured Nation (MFN) to India while India had given Pakistan this status in 1996 but Non-tariff barriers list worked against the interest of free-trade. Now, both the countries appear serious in strengthening their business relation by taking all necessary steps to remove bottlenecks and other hindrances. If implemented honestly, not only the volume of our foreign trade which is presently at US $2.7 billions only would be increased easily by more than 300 percent to over around 10 billions level but Pakistan would attract Indian investments and joint-ventures which would increase economic growth in Pakistan. Cautiously, both the Commerce Ministers of Pakistan and India have set the trade volume to USD 6.0 billions in next three years.
A large volume of foreign trade between these two countries is indirectly done through Afghanistan, Dubai and Singapore beside cross-border smuggling which otherwise would be routed directly between the two countries benefiting the consumers. Secondly, our textile exports to EU countries especially of garments would receive special concession to partly compensate our economic loss caused by rains / floods and other natural calamities. Turkey, India and Bangladesh had mentioned their reservations / objections against this facilities which have been withdrawn by India and Turkey and that of Bangladesh would most probably be withdrawn in WTO meeting in Brussels late this month. These facilities are likely to increase our textile exports to European Union countries by USD 3 billions. Pakistan's textile sector has enough potential in bailing out our economy provided the government bail-out them by providing them all the necessary inputs such as power, gas, finance, transport and service according to their requirements.
Last year, Pakistan textile exports touched the ever highest level of USD 14.0 billions out of total exports of USD 26.0 billions - 53.84 percent. In next 5 years, out goal should be cotton production 22 million bales, consumption 2 million bales, exports 2.0 million bales, total exports USD 45 billions of which total textiles share should be of USD 30 billions (Garments USD 20 billions and textiles USD 10 billions). These targets are realistic ones and can be achieved with some commitments, conviction and strong will.
Cotton market may remain under selling pressure for a couple of fortnights but may recover as cotton prices have gone down beyond one's expectations. The cost of production has gone high because of increasing cost of crop inputs including fertiliser, pesticides, labour, finance and transportation and the present level of seed-cotton price around Rs 2,000-2,200 per 40 Kgs in Sindh and Rs 2,500 per 40 Kgs in Punjab appear quite insufficient to cover production cost. Unless the growers get due return of their produce, they may switch over to other competitive crops next season.
Here below is the table giving detail of production, consumption and export of prominent cotton countries study of which would give fair idea about cotton prices.
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2011-12 World Cotton Production
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(Million 480 pound bales)
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Beginning Production Imports Supply Mill Exports Ending Stock-to
Stock use Stock -use ratio
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World 45.2 123.9 36.3 169.1 114.3 36.3 55.0 48.1%
U.S 2.6 16.3 0.0 18.9 3.8 11.3 3.8 25.2%
China 11.6 33.5 14.0 59.1 45.5 0.1 13.6 29.7%
Pakistan 2.6 10.0 1.5 14.1 10.3 0.5 3.3 30.5%
India 6.3 27.5 0.5 34.2 20.5 5.3 8.5 32.8%
Central Asia 2.3 6.7 0.0 9.0 1.9 4.6 2.4 37.4%
Australia 2.6 5.0 0.0 7.6 0.0 4.2 3.5 81.6%
Brazil 7.8 9.0 0.1 16.9 4.4 3.8 8.9 108.0%
Indonesia 0.4 0.0 2.3 2.7 2.2 0.0 0.5 20.3%
Mexico 0.5 1.2 1.1 2.7 1.8 0.3 0.6 32.0%
Turkey 1.7 3.1 3.1 7.9 5.8 0.2 2.0 33.8%
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Source: USDA-WAOB November WASDE Report.
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