Cotton market: downswing pronounced

In line with the global bearish sentiment and also due to regular arrivals of seed cotton into the domestic ginning factories, cotton prices are passing through a subdued phase. The prices of cotton have thus moved down in the US, China and India. Cotton futures prices on the New York market have come down by 10 to 11 cents per pound in recent sessions. Correspondingly, yarn and other textile business are also not performing well. Thus the cotton economy in Pakistan is passing through a weak phase.
In Pakistan, both raw cotton and cotton products are moving slowly as demand is lacklustre and business is slow. According to some estimates, about 1.1 million bales (155 Kgs) equivalent of seed cotton have arrived into the ginning factors till now during the current season (2016/2017) as compared to 1.35 million bales during the same period in the previous season (2015/2016). Arrivals are notably low from the Punjab province.
Mills in Pakistan are said to have booked nearly 800,000 bales for import till now. Financial crunch is believed to be hurting the domestic textile industry considerably. There are projections that cotton prices could relent further later on. In Pakistan the forthcoming Eidul Azha festival is expected to fall on 13th September 2016 or thereabouts when all business will close down for three days. On Thursday, seed cotton (Kapas/Phutti) prices in Sindh are said to have ranged from Rs 3000 to Rs 3300 per 40 Kgs, while in the Punjab they extended from Rs 2600 to Rs 3200 per 40 Kgs recording a decline of Rs 250 for 40 Kgs within a week.
Lint prices are said to have ranged from Rs 6450 to Rs 6500 per maund (37.32 Kgs) in Sindh, while in the Punjab they are said to have extended from Rs 6600 to Rs 6650 per maund, according to the quality. These prices reflect a decline in lint prices of Rs 300 to Rs 350 per maund within a week.
Monsoon rains are falling throughout most parts of Pakistan, including the cotton belt. Even though no notable damage has been done to the standing cotton crop by the rains till now, but further rains could endanger the Pakistan cotton crop both qualitatively and quantitatively.
Mills are mostly covered for the nearby weeks and are thus not panicky to buy more cotton presently. Reports of colour problems in some cotton following the rains have also been received which is compromising the RD factor in the lint. In the evening, sale of lower grade lint from Sindh was reported from Rs 6300 to Rs 6350 per maund (37.32 Kgs), while better grade cottons from Sindh are said to have fetched Rs 6450 to Rs 6500 per maund. In the Punjab, cotton prices in late session reportedly ranged from Rs 6500 to Rs 6600 per maund, according to the quality. On the global economic and financial front, a prime piece of monetary news came from the president of the Chicago Federal Reserve Bank, Charles Evans, who declared last Wednesday (31 August 2016) that he is increasingly convinced that the "US economic growth has slowed permanently, a situation that will keep US interest rates low for a long time ahead". Evans appeared to subscribe to the "secular stagnation theory". of Professor Larry Summers of Harvard University which cites the American economic slowdown to an aging US population and falling productivity growth which could restrain interest rates to go up in the foreseeable future in any meaningful measure.
In contrast to this view, the Chair of the US Federal Reserve Janet Yellen reportedly stated last week that with the American economy approaching full employment and inflation growing close to the two percent target set by the Federal Reserve, a case for rise in US interest rates has strengthened.
Unfortunately, sundry analysts have reminded us that the American economy continues to carry burdensome inventories while the consumer spending remains lacklustre. Moreover, retail sales continue to disappoint, labour hiring is hardly enthusiastic and inflation barely satisfactory at best. As a result, the average consumer in the United States remains hesitant to spend more money and would thus prefer to save for the rainy days he may confront in the foreseeable future.
Another solution to stop the American economy from lingering on lowly for many more years to come has been mooted both by the Democratic presidential nominee for the coming November, 2016 election, Hillary Clinton and the Republican contender, Donald J. Trump. Both are advocating increased government spending including large spending on infrastructure projects. However, the US congress would have to be convinced of the viability of increased government spending as the Republican members of the congress are hesitant to more government spending.
In other recent news, the economic confidence in the Eurozone is reported to have fallen sharply last month, viz August, 2016, which has been reported to be the lowest level since March, as per the Financial Times. The decline in economic confidence is reflected in the European Commission's economic sentiment index published on last Tuesday. It has been further pointed out that the fragility of the Eurozone's recovery is reflected in the decrease in inflation in August 2016. Moreover, investment in the UK has become shy and fallen sharply after the vote in the UK to leave the European Union. Sharp falls in business investment are also being reported from Spain and Italy. In other headlines this week, the Greek prime minister was reported to have said that Germany was leading the European Union into a crisis and that the European Union is moving towards a cliff. News from Nigeria indicates that it is facing its worst possible recession due to drop in oil prices. The Eurozone inflation remained weak in August 2016. The Brazilian economy is facing its weakest recession in 25 years.
Another depressing factor facing the global economy this week is the glut of crude oil floating on the market due to higher US stockpiles and the report from Iran that it is on the threshold of attaining peak production. Another depressing feature is the decline in cotton futures to nearly eight week low levels. The aforesaid developments do not bode well for an early rehabilitation of the global economy.