Recent sessions in the ready cotton market have made it clear that lint prices are poised not only to attain seasonal high level of Rs 2750 per maund (37.32 kgs) which was achieved on 10th of September 2006 for the current crop (2006-07), but even surpass the peak level in the near future.
Already business has been reported at Rs 2740 per maund a couple of days ago with news of another unverified transaction floating around the market at Rs 2800 per maund for higher class of cotton.
Despite claims from the textile mills that a number of them are working at loss or barely making their ends meet, vanishing of ready stocks of domestic cottons and higher offers for imported cottons from various origins is likely to keep domestic cotton prices climbing upwards. Not with standing civil disturbances in several areas of the North West Frontier Province (NWFP), the standoff deemed to exist between President Pervez Musharraf and the Chief Justice of Pakistan Iftikhar Mohammad Chaudhry and hard-line religious leaders with baton-wielding girl students confronting the government in Islamabad, cotton market is following the logic of dwindling stocks giving steady rise to cotton prices.
Even shortage of liquidity in the market is unable to put a stop to increase in cotton prices. Now turnover in cotton trade has become brisk where all types of cotton from below average to higher grades being picked up willingly by the buyers. It is only the ginners who now and then procrastinate in their sale policy in order to receive higher returns. With only about 600,000 bales (170 kgs) cotton expected to be leftover unsold with the ginners by the end of this month, including a sizeable quantity of average or below average cotton, lint prices may move upwards sooner than envisaged earlier.
Yarn prices are showing uppish tendency due to a remarkable increase in cotton prices over the past couple of months but this increase hardly benefits the beleaguered spinner even because he has to pay higher prices to replenish his cotton stocks. With delay of up to three weeks expected in planting of the next crop (2007-08), small quantities of cotton may not arrive in the market before August 2007.
Thus lint prices are well held with propensity to move up progressively leaving little chance to retract. Prices of below average cotton in Sindh were reported to have ranged from Rs 2350 to Rs 2425 per maund (37.32 kgs); prices for average cotton ranged from Rs 2450 to Rs 2500 per maund, higher grades and BT cotton was being quoted from Rs 2525 to Rs 2600 per maund, while cotton from upper Sindh (K-68) was being quoted from Rs 2650 to Rs 2700 per maund. Cotton from Punjab was priced from Rs 2300 to Rs 2700 per maund but some of the ginners were giving signals for increased asking prices which they may yet obtain.
With the developing circumstances on the home cotton front primarily relating to fast depleting cotton stocks and possibility of a few weeks delay in the arrival of the new season (2007-08) lint prices may harden further. Even if cotton from the new crop does arrive in August 2007, it could be only about 200,000 to 300,000 bales where as the monthly consumption of the Pakistan mills is estimated to be in excess of 1,300,000 bales (170 kgs). Thus scarcity of cotton in Pakistan will essentially remain for the next six months or so.
According to the agents of international merchants in Karachi several mills in Pakistan are deemed to have booked imported cottons including appreciable quantities from the United States of America for deliveries over the next six to eight months and even beyond so that the transition for the spinners from the present (2006-07) to the next crop (2007-08) may not be too painful.
With these positive developments in the cotton market, few observers are speaking of any bearish sentiment in the market. While the domestic mills keep searching for the higher grades of cottons, the exporters are also making modest enquiries for the lower grades. Over the past few weeks, exporters had picked up much lower grades of lint from the Punjab at prices ranging from Rs 2100 to Rs 2200 per maund.
For the past several months, the prices in the open cry sessions on the New York cotton futures market remained mostly mired around 53 to 55 cents per pound. These prices could have ruptured the 50 cents per pound barrier by going downward, but 10 years high corn futures prices will be diverting an estimated 3 million acres from cotton to corn cultivation in the next season (2007-08) in USA which is imparting strength to cotton prices due to lower plantings.
On last Wednesday, the May 2007 delivery settled at US cents 53.91 per pound (up by 52 points), the July 2007 delivery ended the session at US cents 54.87 per pound (up by 46 points), while the October 2007 delivery closed for the day at US cents 57.50 per pound (up by 15 points). The subsequent months ranged higher from US cents 59.39 per pound for December 2007 to US cents 62.85 per pound for May 2008 delivery. The cotton futures market got a boost from the trades who were operating with bullish strategies.