Cotton business has virtually come to a standstill ahead of the national and provincial elections scheduled for next Monday (18th of February 2008) which has been declared a public holiday.
Pronounced bearishness in local lint market coupled with lower advices from the New York cotton futures market and also downtrend in the textile market in recent weeks has put fibre prices under big pressure.
In Pakistan, many people fear that there could be civil disturbance and even worsening of the law and order situation in the country any time from now up to or even after the forthcoming elections. Trucking and other means of transport have been withdrawn for fear of obstruction or possible burning and looting by nefarious elements or miscreants.
In view of this apprehension being harboured by trade and business, some insurance companies have reportedly asked their clients not to move goods and commodities during these precarious times in order to avoid possible losses to the insurance companies. Therefore, business has decreased further approaching immobility.
Other factors which could pound cotton prices include claims of the domestic textile industry that their business has not only reached a bottom but that they are facing dire circumstances due to unusually high cost of doing business because of steep charges of utilities like gas and electricity. Moreover, short and intermittent supply of gas and electricity are also cited as reasons for the poor performance of the textile industry in Pakistan.
In its retort, the Sui Northern Gas Pipelines Ltd, (SNGPL) a large utility supply company has stated that after the first priority to supply gas to domestic and commercial consumers, SNGPL has been supplying to the All Pakistan Textile Mills Association (Aptma) members and other textile units over and above its contractual obligation to them during the winter. In their turn, mills deny the claim of SNGPL and thus the fracas between the millowners and the gas company continues unabated. The Aptma has relied on print media to profess their original stance that the textile industry in Punjab and the North West Frontier Province (NWFP) is "dying" due to what it calls high cost of doing business arising out of non-availability of gas and electricity loadshedding.
On its part, the Governor of the State Bank of Pakistan (SBP), Dr Shamshad Akhtar, recently addressed the members of the All Pakistan Textile Mills Association (Aptma) and advised them to go for mergers and acquisitions in order to effectively confront the tough international marketing environment. She added that the textile industry in Pakistan must consolidate its position to achieve economies of scale to face high competition in the international market and form large scale export units.
The governor of the State Bank of Pakistan said she was cognisant of the problems of the textile industry and mentioned some of the measures taken by the central bank such as introduction of the Long Term Financing Scheme (LTFS) and availability of working capital loans to exporters under the Export Financing Scheme (EFS) at 7.5 percent and urged the industrialists to use this facility for which funds would be available at competitive rates from the commercial banks. Dr Shamshad Akhtar also said that Aptma members could avail foreign currency borrowings provided they had healthy balance sheets.
More available cotton from the current domestic crop (2007-08) than earlier envisaged and high imported cotton figures into Pakistan have also dampened the spirits of operators in the cotton market. If estimated arrivals of domestic cotton for the entire season (August 2007-July 2008) are now envisaged between 11 to 11.2 million domestic size bales or even more and consumption is brought down to range anywhere from 14.2 million to 14.5 million bales, then there is no need to panic as Pakistani mills should crossover to the next season (2008-09) without any large difficulty.
Nasim Usman, a prominent cotton broker at Karachi, recently toured Indian cotton belt and also visited the cotton market at Mumbai. Nasim Usman said that out of nearly two million bales (170 kgs) imported into Pakistan since the beginning of the current season (August 2007-July 2008) till now, nearly half the quantity has been imported from India. He added that some Pakistani mills are having delivery problems as they either bought cotton from small exporters from India or directly from the ginners.
Besides delays in cotton shipments from India, some Pakistani mills are also complaining of lower quality of cotton received including lower micronaire problems in Shankar-6 from Maharashtra and also weight shortages. News emanating from India also stated that now nearly two-third of cotton cultivated there is from Bt seed.
According to Karachi brokers, seedcotton (kapas/phutti) prices in both Sindh and Punjab ranged from Rs 1300 to Rs 1400 per 40 kilogrammes. Lint prices in Sindh were being quoted from Rs 2900 to Rs 3250 per maund (37.32 kgs) while in the Punjab they were being offered from Rs 2900 to Rs 3300 per maund with little change of hands.
Business has been minimal in the cotton market during the past couple of weeks and is not likely to pick up for another week or ten days to come. The Karachi Cotton Association (KCA) reduced the ex-gin price of Grade 3 cotton by Rs 25 per maund each on two occasions or a total of Rs 50 per maund (37.32 kgs) this week which signifies a fairly weak market. Ex-gin price for Grade 3 cotton has been determined at Rs 3100 per maund.
In the evening the cotton market remained quiet as the mills were disinclined to build up their stocks. Moreover, the truckowners were not willing to ply their trucks to haul cotton from the ginneries to the mills till after the elections next week. Yarn and fabric rates were also weak and were not selling easily. Under these circumstances, the ginners were also facing pressure as they are carrying close to two million bales of unsold cotton at this stage.