The cotton hedge trading has been resumed on Karachi Cotton Exchange after a gap of 32 years with the finalisation of a deal of 200 bales of the 2008-09 crop for August delivery. Market sources told Business Recorder on Thursday that traders and textile mills were anticipating that new cotton crop would also be short of demand.
Despite a Federal government ban since 1976, they (millers and traders) have, however, started future trading on the Karachi Cotton Exchange (KCE) to acquire their required cotton before the crop at minimum rate. The deal has been finalised between a miller and a Sindh base-ginning factory located at Mirpurkhas.
In line with the deal, the ginning factory will deliver 200 fresh bales worth Rs 3.3 million of the new season crop on August 15. However, this deal has been struck in violation of a ban, as hedge trading was suspended through an administrative order by the government of Pakistan in 1976, market sources claimed.
In addition, the deal has also been finalised at the historical price of Rs 3,800 per 40 kilograms with an upsurge of Rs 100 per 40 kilograms as against previous highest rate at Rs 3,700 per 40 kilograms. An official of Karachi Cotton Association (KCA) board of directors has also confirmed the deal, and said that during the next few days more future contracts were expected.
"A deal of 200 bales for the August delivery has been registered on KCE and it would be mentioned in the Friday's KCA daily cotton market report," said Ghulam Rabbani, a leading trader and member of KCA board of director. He said that future trading in cotton was introduced in the KCA in 1934, which was effectively and efficiently managed by the KCA until 1975-76. However, following the nationalisation of export trade and ginning factories in 1973, the hedge trading was suspended through an administrative order of the government of Pakistan in 1976.
"The matter of need, utility, benefits and advantages of hedge trading in cotton had been affirmed and re-affirmed by the various officials. Later, a hedge contracts inquiry committees was set up by the government," the board member said.
On the recommendations of the committee, the Federal cabinet meeting held on March 24, 2005 decided to resume cotton hedge trading on the KCE under the Cotton Act 1957. However, despite the several reminders, the official announcement had not issued till date, he said. "The KCA has full and comprehensive infrastructure and adequate by-laws for hedge trading in cotton inclusive of storage capacity of cotton bales at Karachi with 320 licensed cotton brokers," Rabbani said.
He urged the government to allow resumption of hedge trading in cotton under the aegis of the Karachi Cotton Association, otherwise the traders would continue their future trading without any permission. "It is not possible for us to stop the brokers and traders, besides mills from dealing in future trading, as due to the current year's experience, they are already conscious", he said.
He said that government had already failed to provide a platform for hedge trading, therefore, the traders, ginning factories and the millers had started future trading in the KCA. The next cotton crop is also expecting a shortfall and is estimated to be around 11 million bales subject to good weather conditions, he said.