Cotton market: firmness develops

Interrupted supplies of the new crop (August 2015 / July 2016) from Sindh and reports of the United States Department of Agriculture (USDA) that the 2015 / 2016 crop will yield only 13.1 million bales in the USA instead of 14.5 million bales as envisaged earlier have led to a firmness in our domestic cotton prices. Such a decrease in American cotton output for the new crop was quite unexpected. Reports from the USA added that American consumption would increase slightly and has projected that the ending stocks would be 105.2 million statistical bales, or 2.95 million bales lower compared to the earlier USDA estimate of July 2015.
Generally speaking the seedcotton (Kapas / Phutti) prices in Sindh reportedly were priced higher by Rs 200 per 40 kgs due to decreased arrivals and ranged from Rs 2,400 to Rs 2,500 per 40 kgs, while in the Punjab they are said to have ranged from Rs 1,800 to Rs 2,550 per 40 kgs, as per quality.
Even though the yarn prices continue to remain weak, lint prices in Sindh appeared tighter and are said to have ranged from Rs 4,600 to Rs 4,650 per maund (37.32 kgs). In the Punjab, the lint prices were also firmly held and reportedly ranged from Rs 4,700 to Rs 4,800 per maund.
Now most of the early cotton arrivals from the current crop (2015 / 2016) have been sold out and the lint now arriving is said to be of improved quality. Most reports indicate that the development of the current crop is doing well except in some riverine areas. By now, nearly 125 ginning factories in both Sindh and Punjab are pressing the new crop. Reports added that seedcotton equivalent to about 25,000 bales from the new crop is arriving into the ginning factories daily. August 14, 2015 is a public holiday being the Independence Day of Pakistan.
Against the firmer lint prices due to limited seedcotton arrivals and the sudden increase in US cotton futures prices, yarn prices mostly remain dull and are not doing well. Pakistani mills continue to complain to the government regarding high input costs and failure to give back refunds which are due to the textile industry. Government has now promised to solve all the pending issues of the millowners over the next few weeks.
In ready sales reported from Sindh on Thursday, 1,000 bales of cotton from Mirpurkhas were said to have been sold at Rs 4,625 / Rs 4,650 per maund (37.3 kgs), while 400 bales from Tando Adam were said to have been sold at Rs 4,650 per maund in a firm market.
On the global economic and financial front, the value of the Chinese yuan fell consecutively for a third day on Thursday shaking up the confidence in the world's second largest economy. To say the least, the Chinese economy has been rocked to its very foundations. Moreover, the present Chinese stock exchange debacle has sent shock waves to all the bourses and stock exchanges around the world undermining the strength of the Chinese economy enormously.
On Thursday, some indices on the world's stock exchanges took pause to consolidate the values of some of its listings in an apparent feeling that the bourses may have reacted hastily. However, the Chinese devaluation of the yuan signifies that some sizeable faultiness is present in the Chinese economy infrastructure which could be toppled in case of any serious challenges. Such an eventuality being assessed by some economic observers carries the potentiality of shaking up the entire global economic edifice.
Thus during the middle of this week the Chinese authorities fixed the value of the yuan further lower for the third time during this week. This step could be a precursor of what some analysts believe to be a free-floating yuan. The alarm raised by the reduction in the value of the Chinese currency is said to be a desperate attempt by China to quickly halt a decrease in its growth rate and a decline in its exports.
Above all, some observers feel that several countries may follow suit and also start devaluing their currencies. Such a scenario presumes that a currency war may erupt, particularly between the emerging and / or developing countries who are wont to desperately push their exports to keep their goods and commodities reasonably economical and competitive in the global market. Whatever may be the forthcoming developments in global trade, the present chances of a global economic recovery have receded into the background substantially.
While the Chinese authorities wish us to believe that the recent extraordinary decline in the value of yuan by more than three percent is just a routine adjustment, actually most Asian countries like India, Singapore and Pakistan deem that their exports would suffer sizeably compared to Chinese exports. Moreover, cheaper Chinese goods and commodities will hit a range of countries around the world which could lead to lower global growth. Thus many competitors of China are in a state of panic.
Other global worries regarding the Chinese devaluation of the yuan, the sharp increase in crude oil supply, the lower industrial production in the Eurozone in June, 2015 and the increasing dilemma for the US Federal Reserve whether to increase the interest rates during the current quarter continue to plague the world economy. Stocks prices in many countries and regions including the United States, Europe, South East Asia, Gulf countries, Japan and Australia fell at midweek in light of the continuing uncertainty arising out of the recent Chinese devaluation.