Official spot rate remains firm on cotton market

LAHORE: The sluggish trend remained continued in the local market on Friday. Market sources told that market volume remained very thin. ICE cotton futures rose on Thursday as hopes that a swift economic rebound would spur demand for the natural fibre and concerns over dry weather in West Texas offset lower weekly exports.

Cotton contracts for July rose 0.28 cent, or 0.3% to 84.48 cents per lb by 1:19 pm EDT (1719 GMT). They traded within a range of 83.49 and 85.23 cents a lb.

“Export sales were terrible across the board (but) they’re not going to be excellent every week and you’re still in line to have a pretty good year,” said Jon Marcus, president of Lakefront Futures and Options brokerage in Chicago.

The cotton market is likely at a point where it holds firm even in the wake of “sluggish” export sales though it is stalling awaiting fresh news to push it higher, Marcus said, adding prices could face resistance around 89 cents.

The US Department of Agriculture’s weekly export sales report showed net sales of 122,300 Running Bales for 2020/2021, down 55% from the previous week and 54% below the prior 4-week average.

Cotton Analyst Naseem Usman told that despite an upward trend witnessed by the textile industry during last year, the Punjab government failed to keep up cotton production resulting in a decline of 34% compared to last year.

According to experts, textile exports increased by 7.8% during the first six months of the current financial year which led to earnings of $7.4 billion but the industry had to import cotton worth 321 million during the same period.

The country is currently facing a historic shortage of cotton due to the reduction in the main cash crop cultivation.

The State Bank of Pakistan in its report on the agricultural sector has revealed that the area under cotton cultivation has been steadily declining up to its lowest level ever, 2.2 million acres, since 1982. The negligence of the authorities has waned farmers off the country’s main source of foreign exchange for the past many years.

According to experts, cotton production in Punjab and Sindh declined by 34% and 38% respectively. “Up to February this year only 5.6 million bundles of cotton were collected compared to 8.5 million in 2020,” the experts said while pinpointing the dearth of the fibre through data. Cotton is a Kharif crop that is sown during March-May and is then fed by the monsoon rain in June-July.

Cotton cultivation is currently ongoing in different districts of Punjab and the government has set a target of growing cotton on at least four million acres this year. To entice farmers, the provincial government has also announced a subsidy on cotton seeds, fertilizers and pesticides.

Chaudhry Muhammad Khalid, a farm owner, told that he used to grow cotton on 25 acres but plans to double the plantation area this time.

“If the government continues to incentivise cotton cultivation, he will further increase the crop area for cotton next year onwards and reduce plantation area of other crops,” Chaudhry underlined.

Punjab Department of Agriculture Director General (Extension) Dr Anjum Ali urged farmers to use approved cotton seed varieties such as IUB 13, MNH 886, BS 15, Niab 878 and FH 142 for better yields and pest resilience.

“Punjab government is providing approved varieties of seeds for an area over 200,000 acres at Rs1,000 per bag. It also offers a subsidy of Rs4.4 billion for insecticides to exterminate whitefly,” he added. He said that about 4 million acres of cotton crop are expected to yield an average of 17 maunds per acre. Pakistan is the fourth-largest producer of cotton in the world and 80% of its total production comes from Punjab. Dr Anjum Ali underlined that the use of unapproved and illegal seeds has significantly reduced the production of cotton.

“On the direction of Punjab Agriculture Minister Syed Hussain Jahanian Gardezi, a campaign has been launched to apply seed medicine before sowing cotton in the next season for added resilience to pests and diseases,” the director-general revealed.

Meanwhile, textile industry is set to milk more money following the Cabinet Committee on Energy’s (CCOE) approval of another package worth Rs26 billion for the industry by extending the Time of Use (ToU) tariff scheme.

The textile industry is also yet to pay cotton cess for conducting research on cotton crop. It has obtained stay orders and is not ready to pay the cess.

Earlier, the government had prepared a policy under which only those millers that paid the cess would be eligible for subsidy schemes. But under the current government, the textile ministry has withdrawn this condition for big textile millers.

The CCOE meeting was chaired by Federal Minister for Planning, Development and Special Initiatives Asad Umar on Thursday.

The committee also took up another summary of the Power Division wherein it was proposed that the National Electric Power Regulatory Authority (Nepra) may be directed to withdraw the generation tariff and licences awarded to category-III renewable energy projects as their determinations were not consistent with the approved policies.

The CCOE referred the matter to the Law Division for legal opinion.

More over, Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) requested the government to continue importing cotton yarn without customs and regulatory duty till the country became self sufficient in the raw material.

PRGMEA hailed the decision taken by the Economic Coordination Committee (ECC) of the Cabinet to withdraw customs duty on import of cotton yarn in order to ensure smooth supply of it to the value-added industry. The value-added sector also appreciated the efforts of the ministry of commerce in this regard, as this would help increase the country’s exports.

PRGMEA Central Chairman Sohail Sheikh and Chief Coordinator Ijaz Khokhar lauded the efforts of Adviser to PM on Commerce and Investment Abdul Razak Dawood for presenting their demand before the ECC.

The government’s earlier decision of withdrawing five percent regulatory duty in December 2020 on the import of cotton yarn, and now removal of customs duty would greatly support the textile sector and contribute to the country’s economic stability.

“This is not an ideal situation, especially at a time when the exporters are facing financial crunch in the wake of 700 percent jump in sea freight charges and sharp depreciation of dollar against rupee, yet it would provide some cushion to the apparel sector, which is suffering a huge shortage of industry raw material,” observed Ijaz Khokhar.

“We still think that the real solution of raw material shortage lies in opening of import through land route, as cotton yarn import via sea can never become the substitute of extremely low-cost yarn via land route particularly in the wake of exorbitant hike in freight rates of shipping lines,” he added.

Moreover, Indian cotton prices slip on the back of slowing demand from textile industry due to COVID. According to Atul Ganatra, President Cotton Association of India they have seen cotton and yarn prices correct form high due to COVID related restrictions.

Naseem Usman said some media reports suggest that yarn prices have increased 7 to 10 per cent after refusal of import. Cotton’s rate in Sindh was in between Rs 10,200 to Rs 10400 per maund. The rate of Phutti in Sindh is in between Rs 4500 to Rs 5100 per 40 kg. The rate of cotton in Punjab is Rs 10,500 is 11, 000 per maund. The rate of Phutti in Punjab is in between RS 4,800 to Rs 6,000 per 40 kg.

Similarly, the rate of Banola in Sindh was in between Rs 1,600 to Rs 2,000 while the price of Banola in Punjab was in between Rs 1,800 to Rs 2,250. The rate of Phutti of Dalbadin Balochistan is available at Rs 5900 to Rs 6,000 per 40 Kg.

The Spot Rate remained unchanged at Rs 10,800 per maund. The Polyester Fiber was available at Rs 210 per kg.

Copyright Business Recorder, 2021