A sale of 400 bales of new crop cotton for delivery on 15th August 2007 at Rs 2600 per maund from Mirpurkhas in Sindh last Wednesday became a harbinger of good news that the forthcoming crop (2007-08) may arrive well in time and bring further relief to the domestic spinners.
Intense heat throughout the cotton belt with temperatures exceeding 40 degree celsius will benefit the cotton crop and also assist in timely arrival of the new season (2007-08).
Though earlier the price of prime quality cotton had risen to a seasonal peak prices of Rs 2800 per maund (37.32 kgs) and was expected to probe higher levels, it remained flat for the past many days and now seems to be under pressure.
Therefore, the Karachi Cotton Association (KCA) reduced its ex-gin price for Grade 3 cotton by Rs 25 and fixed it at Rs 2700 per maund (37.32 kgs) on Thursday.
With two or three cents per pound dip in New York cotton futures prices in the open outcry sessions in the previous several days, several mills found the opportunity to fix their cotton rates for lint bought earlier on unfixed basis.
However, Pakistani mills also booked some more imported cottons and found these rates comparatively more workable after finding lint from different origins to be more economical after accounting for better fibre characteristics and little or no carrying charges for the imported stuff.
These developments took some steam out of the domestic market so that the ginners not only restrained but even reduced the asking prices for cottons. Domestic ginners are still said to retain about 350,000 bales (170 kgs) of unsold cotton from the current crop (2006-07). Though some demand may continue for the higher grades of leftover cotton with ginners, there is scant demand or inquiry for the lower class of cottons.
Under these circumstances, cotton prices are depicting a quiet condition of the market. With excellent sowing reported for the new cotton crop (2007-08) in Pakistan, we may yet reap a wholesome crop which is forthcoming. Therefore, there is some element of uneasiness in the ginning circles where as the spinners have become circumspect in their cotton purchases.
With a number of textile mills, particularly the spinning units, reportedly suffering losses or barely making even, cotton prices may suffer a further decline of Rs 50 per maund in the near future. Therefore, local cotton business has become slack and mills buying has become quite selective.
Mills in Pakistan are quite discouraged and disheartened because the government has failed to provide any relief to them which it had promised to them earlier to put them at par with their competitors such as China, India, Bangladesh and Sri Lanka who are enjoying support and subsidies from their respective governments.
Sources close to the textile industry now say that Prime Minister Shaukat Aziz has refused point blank to assist the mills in any way to put them on an equal footing in the international market.
Thus the domestic prices of cotton have come under pressure and the news of timely arrival of the next crop (2007-08) as being gauged currently has prevented any further escalation of prices presently. Moreover, for the first time in Pakistan the cultivation of BT (Bacillus Thuringiensis) cotton variety, IRFH-901 is being undertaken during the next season.
It has been developed by the National Institute for Biotechnology and Genetic Engineering (NIBGE) in Faisalabad which requires fewer sprays of pesticides and can give additional lint out of 25 to 75 percent compared to conventional cotton. BT cotton is reported to be well suited to the coastal areas of Sindh.
With more and more BT cotton to be grown in Pakistan in the coming years, we can project the lint output in Pakistan to reach 15 to 20 million bales (170 kgs) in the not too distant future.
Cotton sales are either slow or not being reported regularly. Anyhow, the prices of below average cottons ranged from Rs 2350 to Rs 2500 per maund (37.32 kgs), the average class of cottons were being offered from Rs 2500 to Rs 2550 per maund; the above average or better grades of cotton including the BT cottons were being offered from Rs 2650 to Rs 2750 per maund; lint from Upper Sindh (K-68) was being quoted from Rs 2700 to Rs 2750 per maund, while the cotton from Punjab was priced between Rs 2400 to Rs 2750 per maund as per quality.
We can thus see that after a buoyant behaviour during the past couple of months, cotton market is now entering a declining phase. Bad textile sales and weak offtake being reported from some of the textile units in Pakistan, ongoing imbroglio created after the suspension of Chief Justice Iftikhar Mohammad Chaudhary by President Pervez Musharraf and declining advices on the open outcry sessions in the New York cotton futures market have collectively influenced the cotton market to reverse its direction towards the downside.