Larger cotton arrivals and standing crop in fields indicate towards strong possibility of harvesting a record high crop around 14.5 million bales this season surpassing the last record high crop of 14.375 million bales produced in 2004-05 season. As on 15th January 2012, Pakistan Cotton Ginners' Association reported total seed-cotton arrivals equivalent to 12.829 million bales vs 10.760 million bales same time last season - increase being 19.23 percent.
This season, seed-cotton arrivals in Punjab province are higher by 44.44 percent at 10.312 million bales and in Sindh lower by 30.48 percent at 2.517 million bales. There is no denying the fact that this season torrential rains and devastating floods have damaged cotton crop roughly amounting to equivalent of 2.5 million bales which if survived would have pushed up our cotton production to all time record high level of 16.5-17.0 million bales making the country really cotton surplus after many years as our domestic cotton use is now estimated around 13.5 - 14.0 million bales. We may not get such chance in the next few years. This season, variance in seed-cotton and lint cotton prices was very high up to 50 percent mainly due to severe quality damage by floods and rains. Cotton area in Lower Sindh was most affected by rains and floods and its cotton crop has been severely damaged quantitatively and qualitatively. Quality damaged seed-cotton in Sindh was reportedly sold as low as Rs 1200 per 40 Kgs and lint cotton around Rs 3,300 per 37.324 Kg ex-gin. Apparently, there was high selling pressure on low grade lint cotton which reduced its price in exports as low as to below US Cents 50 a pound FOB Karachi. Some countries like India and Thailand showed interest in low grade cotton and purchased in bulk amount which really relieved the ginners. Cotton growers of Sindh especially of Lower Sindh lost heavily due to rains and floods in consecutive two seasons including the running season and their interest in cotton growing next year appear to be adversely affected. As such, they may reduce cotton area in 2012-13 season and switch over to other better remunerative crops. As a matter of fact, the relatively low cotton prices this season have plunged cotton growers generally in most of the cotton producing countries in losses and these growers are understood to reduce cotton areas from 10 to 20 percent.
Cotton prices in the local market remained steady to firm during the last fortnight period on increased buying interests by local spinning mills fearing scarcity of quality cotton in next month or so. Local exporters also remained in limelight when they managed to sell cotton, especially Sindh's low grades to India, Thailand and other countries at rates down to US Cents 50 a pound or even lower. By the end of January month, unsold stocks may be reduced to 1.0 - 1.2 million bales level. In local market cotton prices have improved to Rs 6,000 a maund of 37.324 Kg ex-gin while Lower Sindh cotton is at low rate between 4,500-5,300 on quality differentials.
India: India introduced GM technology in cotton growing in 2001-02 by sowing Bt cotton on 29 thousand hectares of land which was later increased to 9.50 million hectares in 2010 on better productivity and presently Bt cotton covers 90 percent of cotton area in India. Its production increased from 13.99 million 170-Kg bales to 33.28 million bales in 10 years in 2010 while its lint cotton yield increased from Kgs 278 to 514 per hectare in the same period.
In 2011-12, India is expecting a record crop of 35.0 to 35.5 million 170-Kg bales. Such a spectacular growth, as found in cotton, has not been seen in any other crops in India. Domestic cotton consumption has also jumped to about 25.0 million bales in 2011-12 season with export target of 8.0 million bales. India's main textile hub is Tamil Nadu state in its South which produces cotton only 3 percent of its requirements and consumes 47 percent of total India cotton requirements. One Report of Indian Cotton Federation says that due to high rates of diesel in India, the high cost of transporting cotton from Western and Northern parts of India to Southern area has made their spinning and textile industries unviable and uncompetitive.
Cost of transporting cotton from Bombay to Chinese and Bangladeshi ports by sea cost much less than cotton transportation by road to South Indian Mills. This has great affect on the working of spinning and textile mills in South India and as such this is a great setback to possible increase in spinning capacity in Southern India and an incentive for increasing spinning capacity in cotton growing areas of West and Northern India. As per ICF report, so far some 555 textile mills have closed down in India.
In 2011, the condition of textile industry further deteriorated and they incurred heavy losses. Indian Government has given relief package of Irs 23,500 millions to local Handloom Weavers while textile mills in Tamil Nadu are reported to have lost IRs 150,000 millions in last six months.
Another report says that India is the second largest textile sector of the world after China. As per WTO data, China claimed share of 35% in world textile trade in 2010 while India the second largest sector of textile claimed only 4 percent of world share. In exports of garments, Bangladesh and Vietnam are ahead of India.
There is a sense of some satisfaction in India that in next 3 or 4 years, China's exports of textile and garments may be slowed down drastically due to fast expanding domestic requirements, increasing labour cost and other cost escalating factors while India has enough opportunities for higher export orders diverting from China. In other words, India appear to have great potential in increasing its exports of textile and garments in coming years. Last year when lint cotton prices touched the historically high level of US $2.2 a pound in March-11 and then started coming down fast to one dollar level in July-11, the cotton market received great shocks which made most of the buyers and sellers bear heavy financial losses some beyond their capacities. Countries or textile companies which depended mostly on imported cotton underwent heavy losses than others who also had their own country's cotton production. In 2011, economic slowdown of commodities especially textile and garments in US and Europe and resultant slowdown of textile and garment production activities in the East specially the giants of textile and garments production and exports like China, India, Pakistan, Bangladesh and other countries of this region, have reduced economic activities in cotton and textile sectors. The sluggish trend has also entered into 2012 and is likely to continue till first half of calendar year 2012.
Pakistan's export performance in textile and clothing sector in first six months of Fiscal year 2011 (July-December 2011) posted decline of 5 percent as Pakistan exported textile goods valued at US $5.963 billions against 6.256 billions same period last year. Major loss of export earnings was found in Yarn exports, raw cotton, cotton carded, knitwear, bed wear, towels and made-up articles in June-December 2011 period while gain in export of tents, canvass and other textile materials was seen.
Last year during June-December 2010, Pakistan total textile and clothing exports was US $15.0 billions but this time in first six month of the FY 2011-12, it may be between US $12 and 13 billion level on grounds of prolonged gas and power crisis, deteriorating law and order situation, liquidity crunch, increasing cost of production and reducing industrial productivity beside economic slowdown in US and Europe due to foreign debt crisis in Europe and larger budget deficits in USA.
Export figures of December 2011, are 19 percent down from last year's December figures and this down ward trend in exports may extend to 2012 year. The short period trend in cotton market may be steady to firm but bearish trend may be seen up to April 2012 after which, talks of new crops estimates which may be lower than that of this season, would dominate the market.
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