Weekly Cotton Review: Prices continue to rise amid lacklustre business conditions

KARACHI: Cotton prices continued to rise during the previous week amid a limited business volume. There has been a significant increase in New York cotton prices, impacting domestic cotton markets also.

To boost exports in the textile sector, it is advisable to offer low-interest rates and affordable energy to farmers. However, due to the disparity between prices of cotton and cotton yarn, more mills are partially shutting down.

There is an urgent need to increase the yield per acre to boost cotton production. The Global Cotton Yarn Expo is scheduled to be held in Shanghai from March 6 to 8, with 500 exporters from 11 countries set to participate.

In the domestic cotton market, prices continued to rise last week due to textile mills’ interest in quality cotton. Conversely, the significant increase in international cotton prices, particularly the rate of future trading of New York cotton, is impacting local cotton prices.

The price of New York cotton futures trading rose to 92-93 US cents per pound from 79-81 US cents per pound in the past two weeks.

Large groups of local textile mills bought New York cotton when the price was low, but due to the substantial increase in price, they have now shifted to local cotton.

Textile spinners say that there is a disparity of cotton yarn compared to the current cotton price. They also said that interest in local cotton has increased due to low stocks of cotton and the business is reduced due to the 4 days of holiday in the week. On the other hand, there was speculation in the market that on Friday, the IMF would approve a reduction in energy prices from 14 to 9 US cents, but before that the local government increased the price of electricity by Rs4.56 per unit and the gas tariff was raised by about Rs13.56.

Sources say that even if the IMF reduces the price of energy, it is difficult to reduce the cost of production.

The rate of cotton in Sindh and Punjab is in between Rs 19,000 to Rs 21,500 per maund. The Phutti is available only in Punjab. The rate of Phutti is in between Rs 7,500 to Rs 9,500 per 40 kg.

The Spot Rate Committee of the Karachi Cotton increased the spot rate by Rs 5,00 per maund and closed it at Rs 20,500 per maund.

The Chairman of the Karachi Cotton Brokers Forum, Nasim Usman, has said that there has been a significant increase in the international cotton prices, particularly in the price of New York cotton, which has risen by 8 to 9 cents per pound, reaching a high of 92 to 93 cents per pound.

According to the USDA’s weekly export and sales report, 284,100 bales were sold for the year 2023-24. China was at the top, purchasing 118,800 bales. Turkey bought 57,100 bales, ranking second. Vietnam purchased 29,000 bales, securing third place.

As many as 34,600 bales were sold for the year 2024-25. Costa Rica topped the list by purchasing 15,000 bales. Vietnam came second with 5,100 bales. Honduras was third with 4,800 bales.

Purchase of cotton depends upon viability to spin yarn if the cotton prices remain high and subsequently yarn, fabric, and finished goods prices are not increased in parity with cotton prices. Ultimately mills will go for production cut and even some may go for closure, because of high energy cost with highest ever interest rate, political instability, IMF pressure to increase utilities prices and above all lower demand from overseas for textiles. Mills’ consumption has already been curtailed to 13 million bales, so there is already over a million bales contract of imported cotton carry forward and around 1.5 million new booking. However, additional buying is possible whenever market dips and a flip flop could be seen in next few months.

Our current average yield per hectare, ranging from 700-kg to 750-kg, has the potential to double to 1500-kg per hectare with the use of modern technology. Annually, we lose 1.5 to 2.0 million bales of cotton due to pink bollworm attacks alone.

To put this in perspective, an increase of 1 million bales of cotton is equivalent to a 0.5 percent increase in GDP, and the value of 1 million bales is estimated to be approximately one billion dollars. The implementation of modern technology can significantly increase our cotton production and contribute significantly to the economy.

In 1983–84, the country’s cotton production was 223 kg/hectare. By 1991–92, it had increased to 734 kg/hectare, a level that has remained relatively stable since then. Improving cultivation practices is an important strategy to further increase the yield per acre, especially with the availability of improved cotton varieties.

From April onwards, the country has a substantial opportunity to increase textile exports and capture a larger chunk of the world market, says Pakistan Textile Exporters Association Patron-in-Chief Khurram Mukhtar.

He said there were two main areas that the incoming government should focus on to boost textile exports are electricity-related reforms and the availability of capital. Electricity prices for the export sector have been increased by 115 per cent from Rs20 per kWh to Rs43.07 kWh under the caretaker government. However, the Power Division has been working on a proposal to reduce the cut tariffs for the industrial sector recently.

On the one hand, the unprecedented interest rates have made borrowing prohibitively expensive. To curtail the stubbornly high inflation rates, the State Bank of Pakistan has kept the monetary policy rate at an all-time high of 22 per cent since June last year. On the other hand, the system of sales tax refunds is ineffective, causing a liquidity crunch. “The refund system needs to be more efficient. The law needs to be implemented, which is not being implemented now,” he said.

Copyright Business Recorder, 2024