Weekly Cotton Review: Rates stable amid low trading volume

KARACHI: Cotton prices remained stable amid low trading volume. However, it is expected that soon business atmosphere will be positive.

An immediate strategy is needed to increase cotton production. Collaboration of All Pakistan Textile Mills Association (APTMA) and Pakistan Cotton Ginners Association (PCGA) will increase cotton crop. APTMA has already sent a letter to the Prime Minister regarding growing concern and crisis of textile sector. It has floated some serious proposals and plans for increasing and improving the cotton crop.

During the last week in the local cotton market though the business volume remained low, but the prices remained relatively stable. In the hope of an increase in the price, ginners have started to sell cotton, cautiously.

The reason behind selling of Phutti by ginners is delay in cotton shipments, due to which the price of cotton is stable. Several mills are making limited purchases as per their requirement. An international trading organisation is buying cotton in order to fulfil its old commitments. According to the sources in yarn market, the news of purchase of cotton yarn is also circulating to some extent.

On the other hand, in international cotton markets, especially in the New York Cotton Market, a bullish trend was observed in the rate of Future Trading due to which it is expected that the bullish trend may prevail in local cotton market in the days to come.

From the beginning of the New Year, the demand for textile products may also increase in Europe and America. The export of textile products in Europe and America has been very limited for almost two years after the Covid epidemic. However, now it is said that the stores there might start giving import orders for textile products, giving hope to exporting countries that severe recession may ease in the coming days and the dullness in the business may improve. The business scenario seems to be changing, slowly.

It is good development that the chairman and officials of APTMA and PCGA met at the chamber of APTMA in Karachi for the purpose of making joint efforts for the improvement of cotton crop. The strategy regarding solving the issues faced by cotton crop was discussed in the meeting. They consulted regarding holding seminars and talks for evolving a strategy with the government in order to increase the production of cotton.

It is important that the government announces an immediate package for cotton farmers. Import of quality cotton seed should be allowed. Advantage of China and America’s offer of technical assistance should be accepted.

To increase the cotton crop, the cotton zone should be marked as before. The main reason for the continuous decrease in the cotton crop is that sugarcane is being planted in the cotton zone because sugar mills have been set up in these areas.

Cotton is the key crop of the country and the country needs a textile channel which is the highest foreign exchange earner. It also provides employment to 40-45% of the workforce. It is a pity that we are forced to import cotton worth billions of rupees every year.

The government should immediately ban cultivation of sugarcane in the cotton growing areas and establish a cotton zone; otherwise, the cotton crop will have to be diminished and our textile industry will be forced to depend on imported cotton.

The rate of cotton in Sindh and Punjab was in between Rs 14,000 to Rs 17,500 per maund while the rate of Phutti is in between Rs 5,000 to Rs 8,500 per maund. A bullish trend was seen in the rate of Banola and Khal.

The Spot Rate Committee of the Karachi Cotton Association increased the spot rate by Rs 200 per maund and closed it at Rs 16,700 per maund.

Naseem Usman, chairman of Karachi Cotton Brokers Forum, said that the international cotton markets, especially New York cotton, saw a significant increase in the rate of Future Trading price. Later there was some decline. According to the USDA’s weekly export and sales report, sales for the year 2022-23 were 87,800 bales.

Vietnam stood at the top with 37,200 bales. India stood second after buying 9,000 bales. Pakistan bought 6,800 bales and stood at the third position.

One thousand bales were sold for the year 2023-24. Bangladesh was the top buyer by purchasing 600 bales and Mexico was second with 400 bales.

APTMA Patron-In-Chief Dr. Gohar Ejaz has written a letter to Prime Minister Shehbaz Sharif, revealing that Pakistan’s textile exports are expected to fall below $1 billion per month from January 2023.

Since Pakistan’s economy to a very large extent depends on textile exports for foreign currency and employment, the international economic situation primarily caused by the Ukraine crisis combined with the floods in Pakistan has jolted the country’s economy.

In these dire circumstances, APTMA has requested the Prime Minister’s attention to enable the export-oriented sector to continue contributing the maximum possible support for the Balance of Payments, as well as, employment for the people of Pakistan.

Flood has destroyed cotton crop in Pakistan. Only 5 million bales would be produced this year locally while industry requires 14 million bales. Forex issues have curtailed the import of cotton and other essential inputs for exports. Cost is increased by 20% due to demurrage/ detention and delays.

Pakistan needs to clear all imports of export-oriented sectors that have arrived at parts whether against L/Cs or cash against documents. Priority for and exempting export-oriented sectors from import controls allowing L/Cs for raw material machinery, spare parts, and other items to restore the industry’s supply line is a must. There should be a refund for all demurrage and detention charges incurred by export-oriented sector to maintain competitive costs for exports. A 24-hour help desk should also be maintained to monitor and resolve exporters’ issues.

A currency depreciation of 60 percent in the last year saw no corresponding increase in working capital facilities. A much higher quantum of funds is stuck in work-in-progress as a consequence of a 17% sales tax and devaluation on all inputs. There is an abandonment of the FASTER system commitment to pay refunds within 72 hours. Foreign buyers extend their payment period against shipments. There is an accumulation of “Deferred Sales Tax” which has not been refunded for the last three years.

SRO 1125, zero-rating for the textile value chain, should be restored while collecting sales tax on domestic sales at point of sale. All deferred sales tax and other dues should be immediately refunded. The submission date of Duty Drawback claims for FY 21 should be extended. A new export sector working capital lending facility should be established catering to EOU sectors at subsidized rates to tide over the current crisis.

Electricity supply to mills is erratic and substandard including maintenance shutdowns of 5-6 days a month, reducing effective capacity by 25% of the mills running on electricity. Punjab-based mills running on electricity pay Rs19.99/Kwh while Sindh/ KPK mills are operating at Rs 10/Kwh though captive generation on gas priced at Rs 840/MMBTU ($3.75).

LIEDA, FIEDMC, and Sundar Industrial Estates-based industries are being denied the concessional power tariffs allowed by the ECC and Cabinet over the last 3 years. Despite a multitude of meetings, letters, and commitments, the issue is still pending and the export industries are not able to compete and have become cash-strapped. The matter has been taken up many times with the Ministry of Energy and related stakeholders and it is unfortunate that it has not been resolved. The very concept of industrial estates is also likely to fail as a consequence.

The government should ensure the availability of a concessional tariff to export oriented industries located in industrial estates. All Discos should schedule maintenance shutdowns after consultation with the impacted industry. A taskforce with industry representatives on improving the supply of grid electricity is needed. There should be a Weighted Average Cost of gas for maintaining the competitiveness of the Punjab-based industry.

Over the past two years, the textile sector has invested $5 billion (Rs. 1 trillion) in setting up new factories. Some of them are now complete and the others are in the process; however, some of the machinery of new plants/ expansions is still stuck at ports, L/Cs are being delayed for spare parts, and electricity and gas are not being provided to these new units.

If remedial action is not taken non-functionality of this new investment, instead of increasing exports by $ 5 billion per annum, is likely to lead to massive banking defaults, a complete loss of investor confidence in the future for any investment in Pakistan with many other negative consequences.

Machinery that has arrived at ports and is not being cleared is delaying projects and incurring capital costs to a level where they have become uncompetitive. Gas/ RLNG at competitive rates are not being extended for new connections effectively, rendering new projects/ expansions uncompetitive.

There should be a moratorium on capital repayment from July 1st, 2022 to June 30th, 2023. Shipments of machinery and spare parts which have arrived at ports or are at sea need to be cleared. R.C.E.T to all new projects and expansions should be extended. LTFF should be provided where L/C’s already opened and loans approved by banks.

Moreover, APTMA’s initiative in reviving the cotton crop is a pro-poor strategy that will not only uplift the country’s economic outlook in the coming years but will also serve our future generations. Once a lifeline of our farmers, the cotton crop has now seen its worst in the recent years.

APTMA has thus formed a Cotton Taskforce as a strategic alliance with the Punjab government to revamp and revive the production and yield of cotton crop in Pakistan. APTMA has already made strides by getting in touch with embassies of many countries including the USA, China, Turkey, Brazil, Uzbekistan, Turkmenistan, and Brazil to seek and opt for their seed development technologies, establish affiliations with their top scientific research institutions and enhance bilateral trade. Addressing this critical issue, APTMA is putting together a Cotton Secretariat spearheaded by their Patron-in-Chief, Dr Gohar Ejaz, along with a dedicated team of researchers and seasoned consultants to steer the sector to the right direction. Now APTMA also participates in and contributes to the monthly Cotton Crop Assessment meetings. Being the largest association, APTMA ensures that its presence is not only valued but has a material impact.

Following the roadmap for innovative practices, APTMA has benefited from the persistent guidance and the direction laid out by Dr Gohar Ejaz, starting an initiative to revive cotton in Pakistan. APTMA Cotton Foundation (ACF) is a flagship project of APTMA, a model farming concept that will revolutionize cotton production. This will involve developing and testing various methodologies to improve crop productivity and enhance yield. It will also have an onsite biotechnology laboratory for seed and soil testing and developing technologically advanced seeds. ACF will also support farmers in providing technical trainings and equip them with knowledge on international best practices to cultivate high-quality cotton.

Dr Gohar Ejaz is the pioneer of ACF project with a goal to revive cotton crop by introducing innovative technologies in seed variety development, certified approval systems for seed production, educating the farmers, launching training programs and proposing policy recommendations to government.

ACF will revolutionize cotton farming at domestic level with outstanding future implications – help alleviate poverty for many, furnish domestic cotton demand, reduce import bill, and pave way for an export-led economic development of Pakistan. It will introduce improved, genetically modified, and certified seed system. It will restructure variety approval system to speed up the process as well as to support private sector R&D organizations.

It will implement Plant Breeder rights 2015 with variety stewardship through DNA profiling. It will take measures on an emergency basis in cotton research areas, i.e., variety, high productivity, and desirable fibre traits. It will redefine mandate and function to conduct research on various aspects of cotton, and to lead and support cotton R&D in public (provincial & federal) and private sector. It will also create linkages with research bodies (public, private, local, international), seed companies and other stakeholders.

It, moreover, will introduce innovative technology using advanced mechanization, targeted input, and production subsidy to farmers up to 5 and 10 hectares. It will introduce production subsidy to ensure farmer profits, maintaining market driven prices at the same time. It will also strictly implement Pakistan Cotton Control Act and Cotton Standardization Act 2009 to improve quality of cotton.

Copyright Business Recorder, 2022