After slouching earlier during this week, cotton prices in the ready market again reached top level at midweek due to floundering Pakistani rupee against the united states dollar, a spattering of rain received in the cotton belt in both Sindh and Punjab this week and more current demand compared to supply of cotton due to temporary delay in seedcotton (kapas/phutti) arrivals following the rains.
According to trade talk in Karachi, cotton crop for the current season (2008-2009) could still come close to about 12 million domestic size bales provided the cotton fields in Sindh and Punjab do not receive a battering from excessive monsoon rains or cloudy weather later on.
However, it must be mentioned that on their part the weather pundits are forecasting more rains during the remainder of the monsoon season. Nevertheless, wholesome rains have amply filled the large reservoirs of both Tarbela and Mangla dams and also swollen the rivers which have ruled out any paucity of water for the current cotton crop which was being perceived earlier.
Brokers at the money market in Karachi said that the Pakistani rupee hit an all time low when it officially closed at Rs 75.10 against the greenback on Wednesday with unofficial quote even lower at Rs 75.30 for a dollar.
Thus import of foreign origins of cotton which sometimes appeared attractive to the domestic mills may be reviewed by the importers from time to time. Of course, the export of yarns and other textile goods will now receive a much higher rupee value against the American dollar, particularly for the value added material.
These reports indicate that the domestic crop is deemed alright up to now, namely "so far so good" except that any inclement weather hereafter could adversely effect both the size and quality of the current cotton crop (2008-2009) in Pakistan.
The areas around Rajanpur in Punjab, however, have suffered drastically due to rains and floods. It may be recalled that for cotton sowing in the running season (2008-2009), the government had reduced the target of output from 14.14 million to 12.60 million domestic size bales about a month ago based on farmgate production. Traders are thus estimating the current crop cotton output to be close to 12 million bales on an ex-gin basis.
According to one recent report, mills in Pakistan may consume between 15.25 to 15.5 million local size bales this season (2008-2009). Domestic textile industry is still not performing its best and is also suffering recessional set back like other leading producers such as China and India whose textile output and projections also remain essentially depressed.
In this regard, government has done well to announce recently that a notification has been issued to reduce the gas tariff for captive power plants in the textile industry from 68 to 31 percent with effect from the 1st of July 2008. This step should provide a much needed relief to the textile industry. Furthermore, the Federal Minister for Finance Naveed Qamar has given his assurances to the exporters of towels and bedwear goods that the government will provide support to them.
Like the price of so many other goods and commodities, crude oil prices have also plummeted from $147 to $114 per barrel recently. The domestic trade and industry deserves commensurate relief by reducing the energy cost including gas and power supply immediately so that trade and industry are revived without any loss of time to breed necessary employment and also pave the way for significantly more foreign exchange earnings.
Due to delay in arrivals of seedcotton (kapas/phutti) following seasonal rains in several parts of the cotton belt, lint prices have again come close to record levels during the middle of this week.
While it is hoped that the lint prices may ease with increased arrivals of cotton over the forthcoming weeks, the plunging Pakistani rupee against the United States dollar may not allow cotton values to recede significantly. In other words, the cheapening of the Pakistani rupee against all the major currencies may keep local prices at a higher plane.
A delay in arrival of cotton crop has resultantly propped up the cotton prices. The price of seedcotton (kapas/phutti) in Sindh reportedly ranged from Rs 1900 to Rs 1950 per 40 kgs, while seedcotton prices in Punjab extended over a much wider range extending from Rs 1700 to Rs 2100 per 40 kgs owing to a big difference of Rs 400 per 40 kgs due to a large variation in quality.
Lint prices in Sindh reportedly ranged from Rs 4175 to Rs 4200 per maund (37.32 kgs), while in the Punjab they were said to have ranged from Rs 4200 to Rs 4275 per maund quality wise.
In ready business, 200 bales of cotton from Mirpurkhas in Sindh reportedly sold at Rs 4175 per maund (37.32 kgs) on Wednesday, while 200 bales each from Jhol, Sinjoro, Khipro and 400 bales each from Shahdadpur and Tando Adam all were said to have been sold at Rs 4200 per maund.
In the Punjab, 200 bales from Burewalla reportedly sold at Rs 4250 per maund and 800 bales from Kabirwala sold at Rs 4275 per maund. The tone of cotton prices was described as tight as some leading mills appeared to be quite active in covering cotton from both local and foreign sources.
Decrease in 2008-2009 cotton output in USA from 14 million projected bales last month announced by the United States Department of Agriculture (USDA) to 13.77 million bales (480 lbs) now has given an impetus to New York futures prices despite recent strengthening of the United States dollar against several other leading currencies. Also, fund buying despite selling by the speculators consolidated the fiber prices.
Thus on last Tuesday, the key December 2008 delivery on the New York cotton futures market settled higher at US cents 69.63 per pound (up by 89 points), the March 2009 delivery ended the session at US cents 74.80 per pound (up by 80 points), while the May 2009 delivery closed for the day at US cents 76.60 per pound (up by 94 points).
There remains a chance, however, that the cotton prices may see some pressure due to more arrivals later in the season with the perception of a more positive picture of cotton development in the key state of Texas following recent rains there.