Cotton market firm on sudden cutback in crop size

31 Oct, 2005

Sudden cutback in cotton target sent market to keep firm on the back of PCGA fortnightly figures but towards the close ginners according to market sources were contemplating to sell lower grade at lower rate as they spot rate stayed put, showing no change at Rs 2300.
WORLD SCENARIO:
The cotton futures fluctuated both ways during to week but major plays remained in wait for news that could give them some clue of trading speculative buying/fund buying and speculative sales kept market above.
However, on the opening day modest speculative sales sent the futures down as the market was mired in a band while waiting for leads to give it a direction for next move.
The key December cotton eased by 0.46 cent to 56.16 cents. Fundamentally the market is monitoring on going harvest and what kind of demand develops from China. The market was told that trade talks in the WTO may be scrapped unless the EU cuts off agri import tariffs to agreeable limit. Some Americans farmers would like to happen for obvious reasons.
On Tuesday combined trade and speculative fund buying pushed futures higher hoping trend would persists. Analysts said the close above 55.10 cents for December delivery meant the contract may now mount a probe toward a technical target running from 55.75 to 55.90 cents.
Market participants are also keeping an eye on WTO HK talks of US and EU fail to come up to end with distortion in trade. Basically the market is monitoring the harvest of the US cotton crop and imports orders from China.
On Wednesday futures turned easier again on sales by small speculators causing no change for which players were looking for the last fortnight. The trade direction still not in the grip. Players watching the developments in the US cotton crop, side by side trying to gauge the demand for cotton from lucrative buyer China.
On Thursday futures reeled in the face of abysmal US cotton sales from fund selling to end at one-month low. USDA said cotton sales amounted to 152,600 RBs. US shipments fell to marketing year low of 107,600 RBs. The USDA has forecast exports in 2005-06 at 16 million bales, up from last month's forecast.
Meanwhile analysts said they were particularly worried if demand in China slows down. On the week end futures garnered speculative and trade buying to close higher. The December ended at 52.52 and March at 54.99 cents a pound. Meanwhile, players said harvest pressure from the huge US cotton crop and doubts over the strength of global cotton demand will likely be a feature in the market. The players also have an eye on Hong Kong talks in December to track down direction.
LOCAL TRADING:
Trading in cotton maintained nearly overnight pace boosting spot rate by Rs 10 to Rs 2350 without upcountry expenses. The spinners appeared pretty nervous guessing the condition which may give a push to price. In Sindh cotton changed hand between Rs 2275/2400 and in Punjab between Rs 2375/2400. Phutti prices also got an uppish push. Orders already in hands exporters did not hesitate to buy despite the knowledge that prices were moving higher.
On Tuesday firm outlook stretched to another session as prices refused to budge downside as phutti supply showed low pace, phutti prices in Sindh ruled at Rs 1050/1105, and in Punjab between Rs 1100/Rs 1125.
The spinners and textile millers were constrained on higher prices but keeping an eye on long holidays ahead they maintained buying to meet short term needs. However, consistent with the PCGA pessimism the agri cabinet committee has decided on cotton target from 15 million bales to 12.5 million bales, a setback cotton consumers will have to take seriously.
On Wednesday firm conditions obtained again prompting spinners and textile millers to indulge in modest forward buying following the news that the cotton production has been pruned to 12.5 million bales from 15 million bales. The spot rate was maintained at Rs 2350 while rates in ready ranged in Sindh between Rs 2250/2375 and in Punjab between Rs 2375/2400.
On Thursday good quantity sales were seen before long holiday closure due to Eid. However, spot rate was put at Rs 2350. The TCP has made fresh offer at 45.50/46.50 cents a pound. Report did not mention buying from corporation but said stepped up buying was marked during which over 5,000 bales changed hands at prices ranging from around Rs 2310 and Rs 2400 depending on quality.
On Friday a sort of U turn was seen in cotton trading which defied buying mills still showing soft turn. The spot rate was however left unchanged at Rs 2350 cotton cost in Sindh between Rs 2175/2325 and in Punjab Rs 2350/2375. The ginners are learnt to have thinking to lower cotton rate for faster outflow. Saturday's session suddenly depicted picture softer as ginners, for reasons only known to them started thinking to sell lower grade at lower rate despite their own pressure building fortnightly figures and govt decision to cut production target from 15 million to 12.5 million bales.
DOWNGRADED, ALLRIGHT:
The govt has revised downward cotton output from original 15 million bales to 12.5 million bales during a recent meeting of Federal Agri Committee (FCA), which is hoped must have some valid ground to do so . It was expected govt decision should not base on the major interests in cotton and textile trade (Exports). No doubt reports were coming quite frequently about the estimates in newspapers where two side of the picture were on display. While one side of report was earnest about telling that some pest attacks had been reported, but in the same breath it also used to stress that pest and virus attacks had not crossed the threshold and all could be well if immediate steps were taken to rectify the "wreckage". The knowledgeable circles were not sure reports saying attack had cast damaging effect on the cotton from one end to the other end. The PCGA fortnightly reports, perhaps too painted picture which was dreary - the reports were speaking in terms of loss-five to 10 lakh bales as compared with production in the same period last year. Thank God so far cotton damage report has not come from horrendous quake in 80 years. The ground on which govt has taken to reduce the quite reasonable earlier target at 15 million to 12.5 million has not been stated, rather is quiet on the issue. The decision could be taken on face value because authorities know fully well that its planning that is hit if planners placed on table is shaky or vague or even wrong. The reports validity should be checked on ground also by the federal committee and stated while reporting about the decision. In today's case what has confused the circles is that no authenticity has been proved. They hoped that government will come out with more authentic figure if planning is done to know and find the truth. The debate is not about low or high figure but on the authenticity of the same.
HOPES AGAINST HOPE
Wishing well in the hearts of heart to the 6th ministerial meeting less than two months have in Hong Kong, few would like to see going HK, Doha Round 2001 way. Dozens of significant and otherwise meetings in Geneva, Germany, Beijing etc during the last couple of months have not beamed any silver lining Doha Round Agenda with success.
The US agricultural subsidies and EU subsidy plus agri import tariffs are obstructing the WTO birth. None has courage to take upon responsibility to break the toy called WTO. After December 18 yet another year will be "sanctioned" for the two big economies.
Doubts have taken the toll of an opportunity for the so-called world powers to what the knowledgeable circles saw would have liked to be absolved of such charges one would not like to even hear. It has been taken for granted that powers should have upper hand in trade, commerce etc.
A report from Brussels said about European negotiators in strained hard number crunching, as they try to square demands for bigger farm sacrifices with fierce opposition from France (A unit of EU) to any more concessions. The EU must be under immense pressure as US and other cohorts charge EU for causing impasse to the extent of derailing a WTO agreement in Hong Kong.
EU is repeatedly being asked to offer agreeable import tariffs it has used to protect European farmers. France, the staunchest defender of Europe farm spending of over 40 billion Euros ($48bn) warned Brussels has used up all its negotiating margin.
The EU and partners on the other hand doubt subsidy cut by America up to 60 pc. However, a great deal depends on Friday meeting between EU, America, Australia, Brazil and India. But difference gap being wide apart could yield anything as time is running out fast. And Brazil and India have stuck to their stand that allowing access to their markets without agreement on subsidies and tariff issues, does not arise. So the circles are little hazy on what is in store in developing countries' farmers after December 18 in Hong Kong. Extension of another one year or - they wanted to watch hectic movement further more to come to grip!
ONLY TWO WEEKS AWAY:
The world powers, whose baby WTO is, are holding the system practically hostage by trying to strengthen their firm grip, needs strong economies to think joining it, commented knowledgeable circles.
They were reacting on a report that Saudi Arabia and Ukrain have reached WTO threshold, the farmer with chances of early admission, after 12 years of tough talks off and on negotiations. A WTO working party which has overseen the talks in Geneva seems certain to approve the final terms to qualify Kingdom within the next few weeks.
The report indicated that Kingdom had been slow, and rightly so, to harbour fears WTO free trading would take away edge to restrict imports of goods prohibited under Islam. This curb would however remain a hurdle even after joining it. It would be better kingdom would have been pretty clear on the subject rather would yield to the WTO free trade rules. The question how kingdom would restrain imports of goods prohibited under Islam including pork, alcohol and pornography.
The problem with Muslim countries is that they can't match the chicanery but would feel bound to submit under pressure as a partner and participant in a body like WTO. Meek voices bubble up in Muslim countries for a common market but burst out no sooner than a few like minded would sit and a shape emerged.
Before celebrating entry into a free global system kingdom could sit almost unmoved until the entire 148 members spoke in voice WTO is free, free in letter and spirit.
In two weeks time 6th ministerial meeting Hong Kong 13th to 18th December sitting will battle whether America will be true to its 60 pc commitment to its farmers and EU will cut its import duty to 20 pc to 55 pc as demanded by America. The EU trade commission Peter Mendelso have been censured by France repeatedly to his going beyond his mandate. The circles with close touch with the subject thought six weeks are too close to change a built up outlook but they believed kingdom could stay back until WTO had been given the requisite power take threats to take.
TAIL PIECE: Agatex Pakistan is holiding an international show of textile machinery mostly of foreign brands and more particularly Chinese, preceding this report or for necessity a lot of newspaper panels carried several advertisements such as cot grinding machine, automatic flat grinding machine, cotton treatment machine and complete spinning machinery plant from China.
The senior people close to cotton and textile trade wondered all Chinese machine were advertised but not a single locally produced machine was brought in fore to compete Chinese products.
Is there anybody to inform there is or there are no plant prepared or produced or manufactured locally. Or, does textile machinery need so sophisticated technology not to be found in Pakistan?

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