A bearish trend has emerged on the cotton market since the beginning of this week which has reversed the earlier strength of lint prices which was apparent during the previous weeks.
The weak disposition of the cotton market is reflective of several factors including relative decrease in New York cotton futures prices, reports of reduction of Chinese buying from India for the time being and efforts of Pakistani mills not to build long inventories of cotton till there is improvement in the textile sales and profitability.
Despite the fact that ideas of current cotton crop (2007-08) output in Pakistan have been scaled down further by the trade and the production could thus be only 10.5 million or 11 million domestic size bales, activity in the ready cotton market remained mostly contained during this week.
The sagging tendency of cotton prices has been affirmed by the decrease of Rs 75 per maund (37.32 kgs) declared by the Karachi Cotton Association (KCA) for the determination of the ex-gin price of Grade 3 cotton on Thursday at Rs 3100 per maund.
Despite growing fears that this year's cotton crop in Pakistan may be much lower than previously envisaged, cotton prices have come under pressure which is also bothering the ginners who are carrying a high figure of unsold cotton with them.
Mills sources continue to portray their working condition as nothing short of a disaster or a calamity. Therefore, there is ample worry in the ranks of the textile industrialists who continue to blame the government for not providing them with the competitive edge or even a level playing field which the millowners claim is being enjoyed by their counterparts in China, India, Bangladesh, Sri Lanka or Vietnam.
The mills claim that their cost of doing business is unusually high which makes them incompetitive.
Textile mills in Pakistan may feel more comfortable with the induction of Mian Shahzada Alam Monoo as the federal minister for commerce and textiles because Shahzada Alam Monoo and his family own a number of industries including a string of textile mills providing him with a lot of experience in the field of textiles.
Monoo was educated at the elite Aitchison College in Lahore and also attended the prestigious North Carolina State College (now university) in the faculty of textiles. Even though he is holding the commerce and textile portfolio in a caretaker capacity, the domestic textile industry looks forward to him to receive immediate redress of the sundry problems and difficulties the Pakistani textile industry continues to face.
This week has seen a decline of Rs 50 to Rs 75 per 40 kgs in the price of seedcotton (kapas/phutti). The price of seedcotton in Sindh reportedly ranged from Rs 1475 to Rs 1500 per 40 kgs, where as in the Punjab it is said to have ranged from Rs 1500 to Rs 1550 per 40 kgs.
Lint prices suffered a fall of Rs 100 to Rs 125 per maund this week. In Sindh cotton prices were said to have ranged from Rs 3025 to Rs 3150 per maund (37.32 kgs), where as in Punjab they reportedly ranged from Rs 3100 to Rs 3180 per maund according to the quality. In the evening, the price sentiment was quite subdued in the cotton market.
Sagging tendency of cotton prices may also increasingly be a result of a continuous disparity between fibre prices and the sale prices of yarns and other textile products. Thus a correctional phase may also have become operative in the cotton market now.
The domestic mills continue to restrain their buying of cotton in order to avoid purchases of lint at higher prices to cut their losses or improve their profits as the case may be. It may be added here that Pakistani spinners are estimated to have purchased more than 100,000 metric tonnes of Indian origin cotton during the previous month which is scheduled for December 2007/January 2008 shipments.
This is in addition to cotton purchases which may have been made earlier. It is foreseen that inquiries for Indian cottons from the domestic mills will continue to be made and appreciable more business is likely to transpire.
Presently, however, arrivals of seedcottons into the ginning factories in India have increased materially which should lower the prices which could conceivably trigger purchases by the Indian mills and also foreign buyers. Political uncertainty in Pakistan and bad business for most of the textile industry should put an estoppel to any significant rise in cotton prices despite a shorter harvest expected this year (2007-08).
Moreover, thanksgiving holidays on November 22 and November 23, 2007 in the United States of America followed by a weekend is likely to put much cotton activity at a low pace in our market.
In actual business transacted on Thursday, 200 bales of cotton from Sultanabad in Sindh reportedly sold at Rs 3025 per muand (37.32 kgs), while 200 bales from Shahdadpur sold at Rs 3050 per maund.
In the Punjab, 1000 bales from Rahimyar Khan sold at Rs 3150 per maund; 400 bales each from Bahawalpur and Dera Ghazi Khan sold at Rs 3175 per maund while 400 bales from Khanewal sold at Rs 3180 per maund. In the evening, mills continued to adopt their wait and see policy which apparently is putting the ginners under persisting pressure.