LAHORE: Previous week saw an increasing trend in the price of quality cotton. However, with every passing day the cotton stock is decreasing. There is a possibility of further increase in the cotton price in the year 2024 due to low stock.
The expected total cotton production is about 8.5 million bales. Last year was quite challenging for the textile sector with a continuous decline in textile output. International cotton prices fluctuated throughout the last year.
The local cotton market saw interest of textile spinners’ interest in buying quality cotton especially during the last week of December, causing the price of cotton to rise by Rs 5,00 to Rs 1,000 per maund.
Though some contracts were credit based, but overall the increase occurred amid stable business volumes.
The availability of quality of cotton in the market is decreasing, causing the needy mills to struggle. According to sources, there is an expectation of a further increase in cotton prices from this month. Due to this anticipation, sales of cotton are not happening quickly, and the profit margin is also gradually decreasing.
In Sindh and Balochistan, the cotton crop damage has almost ended, with a limited damage being reported only in some markets in Punjab. The ginning factories are also shutting down gradually.
According to the market sources, the cotton production until December 30 is approximately around 8.25 million bales, while a total of around 8.5 million bales is anticipated by the end of the season.
The local textile mills are expecting a requirement of approximately one Crore and twenty five lac bales.
There will be a need for around 2.5 million bales of imported cotton to fulfil the local demand. Many textile mills had signed contracts for cotton imports last year, out of which approximately 1.6 million bales are yet to be delivered, due to the non-availability of Bank LC (Letter of Credit) last year.
Additionally, around 8 Lakh bales of cotton are expected to be imported from Afghanistan, reducing the need of importing low quantity of cotton from other foreign countries.
In Sindh, the price of cotton is in between Rs 5,500 to Rs 18,500 per maund. However, the stock of Phutti has nearly ended. In Punjab, the price of cotton is in between Rs 16,500 to Ts 18,200 per maund while the rate of Phutti per 40 kilograms is approximately Rs 6,500 to Rs 8,500.
In Balochistan, the price of cotton was around Rs 17,000 to Rs 17,500 rupees, and the stock of Phutti have almost ended.
The Spot Rate Committee of the Karachi Cotton Association increased the spot rate by Rs 3,00 per maund and closed it at Rs 17,300 per maund.
The international cotton market remained stable, overall, last week. The rate of Future Trading of New York Cotton closed at 81 American cents per pound.
According to the USDA’s weekly export and sales report for the year 2023-24 stood at 369,900 bales. China led by purchasing 271,200 bales, while Vietnam followed with 38,900 bales. Mexico secured the third position, purchasing 13,500 bales. Additionally, 2,600 bales were sold for the year 2024-25.
Market sources told Business Recorder that there is a chanced of increase in cotton prices from the year 2024. The last week of the year saw the rising prices every day, a very unusual trading pattern.
The daily price increases were consistently low but they remained continuous. However, these price gains were amidst very low trading volume.
Cotton closed the year with an excellent technical run, rising above several key moving average indicators. Both export sales and shipments were strong, with sales reaching another near-annual weekly high and shipments attaining the weekly level necessary to meet the USDA’s 2023-24 marketing year export projection of 12.2 million bales.
The previous year begun with the threat of coronavirus badly affecting the market, but by March the futures contract rode the wave above 81 cents before closing the year at 81 cents after trading up to 81.75 cents. As exciting as the price rally remains, one must remember it failed at the heavy, heavy price resistance at the 82-cent level.
Moreover, the rally failed to generate any positive movement in open interest, suggesting that much of the buying was mill fixations buying.
The cotton market will have to have the speculators and funds may take the prices back to the 84-88 cents level. Funds have the cash on hand and with lower interest rates bonds are beginning to lose their lustre and those will be replaced with cash.
Thus, funds will soon have hundreds of billions they will look to invest in the equity and commodity markets, cotton being one. However, demand must surface before funds will get serious about the cotton market. Yet, there is no doubt that fund buying in the cotton market can take prices up to the very top of the long-term 76-88 cents trading range.
However, the short-term trading range of 78-82 cents will likely continue to dominate. Leakages on either side are very possible but would be short-lived. Chinese purchases have dominated the US export market and will continue to do so.
Chinese purchases have dominated the U.S. export market and will continue to do so. Vietnam, Bangladesh, and other Asian countries will also continue making purchases.
However, sales to all countries, except China, will likely remain measurably lower than in past years— a reflection of poor demand. In fact, the world consumption is likely overstated by the USDA.
If not, one should not realistically expect any increase in consumption across any country. While Chinese purchases continue to be in hundreds of thousands of bales, the bulk of those purchases are being used to increase the inventory of Chinese stocks, not for immediate mill consumption.
The Chinese are simply buying cotton at a price lower than their local farmers can produce the product.
The price rally did elevate the new crop December contract back to 79 cents, settling the week and year at 79.36 cents. The US growers see the new crop at 80 cents, with the absolute necessity to see a rally up to 85 cents to approach a break-even point.
Thus, US plantings are projected to be 10.3 million acres. It will continue to trade just below the March contract until the March expiration, at which point weather and other fundamentals will carry more weight in analysing expected 2024 plantings.
Any rally in the December 2024 contract to 80 cents will move plantings slightly higher. However, it is difficult to foresee higher futures prices in the absence of significant fund buying entering the cotton market.
Copyright Business Recorder, 2024
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