Weekly Cotton Review: Global price decline finds its reflection in local market

KARACHI: The international cotton prices are experiencing a significant decrease, leading to a local decline. There is a reduction of 700 rupees per maund in spot rates.

Sindh’s Provincial Minister for Agriculture Muhammad Bakhsh Mahar demands fixing the intervention price of cotton in Sindh at 10,000 to 11,000 rupees.

According to All Pakistan Textile Mills Association government of Punjab, has decided to reduce the cotton cultivation area. Now cotton will be cultivated on 40 lac acres in Punjab.

The cotton cultivation area will be equal to the cultivation area of sugarcane and rice. The rise in electricity tariffs makes it impossible to promote revenues. The threat of a 35% decrease in water poses a risk to crops.

The rate of cotton may be low in the up coming season. Due to the low prices, large spinners are showing interest in signing import contracts.

After the long Eid al-Fitr holidays last week, there has been sluggishness in the market among businesses starting up in the local cotton market. The trading volume has significantly decreased, and there has been a noticeable decrease in cotton prices in international cotton markets, which has had a dominant impact on local cotton, leading to a prevailing slackness. As a result, experts are concerned that cotton prices may relatively decrease in the upcoming season.

Due to the low prices in international cotton markets, major spinners are showing interest in lucrative contracts. Ginners have only about 50,000 bales of cotton in stock, while a private international company has approximately 60,000 bales in stock. Meanwhile, textile mills are already struggling with a crisis, leading to a lack of interest in purchasing cotton.

Besides, there is a significant decrease in yarn purchases. The government is continuously increasing energy prices, with electricity rates expected to rise by almost 3 rupees per unit after the increase in petrol and diesel prices.

Due to the already significant increase in energy costs, the textile sector is partially operational, with several mills already closed, and rumours circulating in the market that many textile mills are up for sale. Like other industries in the country, the textile sector is also sinking into a severe crisis. However, the government does not seem to be taking these serious matters seriously.

In the cotton-producing regions of Sindh and Punjab, compared to last year, cotton sowing is reported to be lower this year due to unfavourable weather conditions. Some areas had sown cotton due to unsuitable weather conditions, but it did not yield positive results, and there are reports of re-sowing in some areas.

Water issues are also being mentioned for the upcoming season. In recent days, there were advances in cotton trading in the market, but then there was silence.

Sindh Minister Muhammad Bux Mahar, urging the federal government, said the support price of cotton should be set from the current level of Rs 85,000 by at least Rs 10,000 per mound or maximum Rs 11,000 per mound to address the issue of inadequate pricing and high cost of production, which has resulted in farmers refraining from cultivating cotton, consequently leading to severe hardships for farmers in Sindh.

Minister of Agriculture has further emphasised that the current target for cotton cultivation in Sindh for the current year stands at 640,000 hectares. However, the sowing of cotton in Sindh has declined by 20 percent due to the increased costs of fertilisers, seeds, petroleum products, and pesticides, which have escalated the expenses for farmers.

The Punjab Agriculture Department has fixed to bring 4 million acres of land under cotton crop this year in the province.

Secretary Agriculture, Punjab Iftikhar Ali Sahoo disclosed this while presiding over a meeting on the current situation of cotton here on Friday. He said that direction have been given to all relevant field formations to ensure cotton cultivation on maximum area.

He said that the meetings of the divisional committees should be held regularly under the chairmanship of commissioners and deputy commissioners and public representatives should be invited in these meeting. He directed all the officers to guide the farmers to cultivate cotton as soon as the land is vacant as a result of the harvesting of the wheat crop. Field activities should be continued even during Eid holidays. The problems of seed, fertiliser and water supply should be identified in the division and district level committees. Representation and participation of the farmers in the committees should be ensured. The schedule of water supply in canals and rivers can also be changed keeping in view the sowing situation of cotton crop. Awareness seminars for cotton should be organized at division, district and tehsil levels.

Secretary Agriculture added that department is in constant contact with the federal government for the supply of fertiliser in the Kharif season

Every year, the Federal Committee of Agriculture (FCA) used to announce the area and production estimate of cotton in the country, but so far, the FCA has not announced the estimate.

The rate of cotton in Sindh and Punjab is in between Rs 20,000 to Rs 22,000 per maund. Phutti was not available. The rate of Khal, Banola and oil remained low.

The Spot Rate Committee of the Karachi Cotton Association decreased the spot rate by Rs 700 per maund and closed it at Rs 20,800 per maund.

Naseem Usman, the chairperson of the Karachi Cotton Brokers Forum, said that there has been a decline in the international cotton prices. The rate of Future Trading of New York cotton has decreased to 78.69 cents per pound. There has also been a significant decrease in cotton prices in Brazil.

According to the weekly income and sales report from the USDA, a total of 146,100 bales were sold for the year 2023-24. China led the list by purchasing 92,600 bales. Pakistan followed closely behind, purchasing 9,600 bales. Vietnam secured the third position with the purchase of 9,000 bales.

For the year 2024-25, a total of 80,100 bales were sold. Honduras topped the list by purchasing 45,100 bales. Peru secured the second position with the purchase of 10,500 bales, and Pakistan followed in third place with the purchase of 6,600 bales.

In a letter addressed to the Finance Minister, All Pakistan Textile Mills Association has stated that it is impossible to run the industry on the most expensive electricity tariff. Instead of 17.5 cents, the rate must be brought down to 9 cents per unit, comparable to regional countries. According to details, APTMA further conveyed to Finance Minister Muhammad Aurangzeb that the increase of 17.5 cents per unit in electricity rates for industrial consumers is nearly double the regional average rates. Meanwhile, since January 2023, there has been an unbearable increase of 2.23% in gas prices, resulting in the manufacturing sector being endangered in the country.

On the basis of year-on-year, electricity usage has decreased by 70%, and the industrial process in the northern regions of the country is deteriorating rapidly due to unusually high electricity prices.

It has become unfeasible for the industry to be operational, leading to negative impacts on industrialisation in the country. To avoid this situation, it is proposed to bring the tariff of electricity to the regional competitive level at 9 cents per kilowatt-hour and abolish the gross subsidies, which have reached an annual volume of up to 220 billion rupees in non-production estimates. According to estimates, bringing electricity rates to 9 cents per unit will only increase electricity usage in the textile sector by 1530 megawatts annually, resulting in additional revenue of $9 billion annually, along with an additional $6 billion annually in the energy sector, totalling $9 billion annually.

According to a recent report by the Indus River System Authority (IRSA), there will be a 35% water shortage in rivers this year. Consequently, the Punjab government has reduced the cotton cultivation target from 5 million acres to 4 million acres.

However, Mahmood Nawaz Shah, President of the Sindh Abadgar Board, expressed his respond and told Sajid Mahmood, Head Transfer of Technology Department Central Cotton Research Institute Multan that the reduction in cotton area is not solely due to the water shortage but also because cotton cultivation has become unprofitable. He mentioned that the area for cotton has been replaced by paddy and sugarcane, with paddy cultivation increasing by 18% in Punjab last year and expected to continue this year. He emphasised that the increase in water-intensive crops like sugarcane and paddy contradicts the notion of water scarcity being the sole reason for the decrease in cotton cultivation. He suggested exploring new strategies to enhance cotton production and profitability.

Copyright Business Recorder, 2024