The fortnightly cotton arrival and disposal report by Pakistan Cotton Ginners' Association (PCGA) for the first fortnight of this November month is yet to come but trade circles estimate total arrival of seed-cotton between 7.0 and 7.2 million local weight bales equivalent which means some 60 percent of the total estimated crop while by the end of this month, total arrival may be between 8.7 and 9.0 million bales which be around 72-75 percent of total crop.
As on 1st November,08, total unsold stocks of cotton was 1.456 million running bales which may inflate to over 2.0 million bales and by 1st. December it may be touch the level of 3.0 million bales which would be 1/3rd of total arrivals. Trade circles estimate total cotton crop between 12.0 and 12.5 million local weight bales while USDA November,08 estimates put it at 9.0 million 480-lb bales=11.5 million 170-Kg bales.
Cotton remained depressed during the week and prices declined to the level of Rs 2,700 per 37.324 Kg ex-gin but later improved and at the close of the week Sindh style was traded between 2850 and 2950 while Punjab style was quoted between 2950 and 3050 per maund of 37,324 Kg ex-gin. As mentioned above, unsold stocks are estimated around over 2.0 million bales which at current rate cost some Rs 27 billions.
The ginners are complaining of spinners who allegedly have slowed down their lint purchase and resultantly stocks are accumulating. Most of the ginners have unfixed seed-cotton and do not take risk of selling lint cotton at fixed price. The spinners are no getting credit from banks for cotton procurement. As a result of decline of Rs 1000 per maund, the credit limits of the spinners have been adjusted by the banks at prevailing rate which has exhausted credit limits of many spinners.
The banks, in view of liquidity crunch, have tightened release of money to spinners and ginners. The increase of 2 percent in bank interest rate by the State Bank of Pakistan has impacted business viability negatively and possible losses in trade and industry may force the business organisations or individuals run in defaults.
Almost other countries of the world are reducing bank interest rates and increasing CRR (Cash Reserve Ratio) to increase liquidity supply to fight against economic recession. The huge unsold stocks of cotton demand of the government cotton procurement through its agency namely the Trading Corporation of Pakistan to bail out the ginners and the growers of this crisis but conditionalties of International Monetary Fund (IMF) who the other day sanctioned Pakistan a rescue loan of US $7.6 billion may not permit Pakistan to subsidise cotton endangering the role of TCP in procurement of lint cotton from ginneries at fixed rates.
The exporters were apparently the main beneficiary of this declining cotton and weakening Pak Rupee against US dollar but some defaults on the part of importers by not opening LCs and recently improving of Pak Rupee against US dollar have caused general loss to exporters but specially those whose foreign sales were backed by purchased cotton stocks.
If TCP enters in cotton market as third buyer, the lint prices may be maintained at the level of Rs 3,000 otherwise, prices may dwindle to the level of Rs 2,500 per maund of 37.324 Kg ex-gin under the impact of global economic recession and financial crisis coupled with domestic factors such as acute power shortage, possible 40 percent reduction in irrigation water in 2009, deteriorating law and order situation, disturbing situation on borders, poor performance of economy, and inconsistency in economic and political policies and fear of continuity of negative factors for nest six / eight months. Inspit of possible corruption in its operation and in efficiency, cotton market may get impetus benefiting ginners particularly only a few ones more than the genuine growers.
India's cotton market is in very difficult situation. India increased its Minimum Support Price (MSP) for seed-cotton by 45 to 48 percent from last year's level. Instead, cotton prices have decreased sharply in the international market due to global economic recession and financial crisis. Resultantly, the Cotton Corporation of India - a government agency is obliged to procure most of the seed-cotton from growers at fixed MSP.
Lint prices in the domestic market of India are about 25 percent higher than international prices. As such, the Indian spinners prefer to purchase foreign growths to domestic cotton taking benefit of their government's decision to withdraw 14 percent import duty on lint cotton. India is reportedly harvesting a bumper cotton crop of some 35.0 million 170-Kg bales ex-gin.
The spinning mills are in difficult situation and the domestic consumption is likely to be reduced than what was estimated earlier. This would increase the surplus cotton to around 12.5 million bales just equal to Pakistan's estimated total production of this season. India spinners have started booking cotton from US, Pakistan and Brazil finding their growth comparatively cheaper.
Although, China is reportedly holding world's largest foreign exchange reserves of some US dollar 1,900 billions but its economy specially the cotton and textile sector is in difficult position. Cotton prices have declined drastically down local support price. In view of reduced export demand of textiles, its textile industry is cutting down its production and laying off the workers.
This season, China may restrict its raw cotton imports to the WTO mandated level of 894,000 metric tons = 4.105 million 480-lb bales which may be near-to-fatal situation for USA and India who had been exporting bulk of their exports to China in the past. China's total imports of raw cotton was 6.385 million 170-Kg bales in 2004-05, 19.284 million bales in 2005-06, 10.588 million bales in 2006-07, 11.530 million bales in 2007-08 and initially planned to import some 11.00 million bales in 2008-09.
This season US export target is 13.0 million 480-lb bales just equal to its total production of this season consuming some 4,4 million bales from its carry-over stocks. In November,08, USDA estimates world total imports at 35.193 million bales which are likely to reduce further by about 10 percent in view of recent developments in China.
On New York Future Market, cotton prices have lost heavily and rulind December,08 contract has once touched the level of 36 under heavy selling pressure. Last week, December,08 contract closed at US Cents 41.03 and distant March,09 contract at 42.51. The recent improvement in prices appear to be related to deliver period in December contract in next week and spread between the two contract may further reduce. Cotton experts are of the opinion that this situation in cotton market may extend longer and may not be controlled by long and short positions. As a matter of fact, it is the failure of an automated and independent financial system under capitalistic society and need some controls and changes in the system able to counter crisis in the system.
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TOP-FIVE COUNTRIES OF THE WORLD (Mln480-lb bales)
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No Production Consumption Exports Imports
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1. China 36.50 China 51.00 USA 13.00 China 10.50
2. India 25.00 India 18.00 India 5.90 Pakistan 3.30
3. USA 13.50 Pakistan 12.00 Uzbek 4.05 Bangladesh 2.95
4. Pakistan 9.00 Turkey 5.20 Brazil 2.45 Turkey 2.90
5. Brazil 6.25 Brazil 4.40 Austr. 0.95 Indonesia 2.22
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Source: USDA Nov,08 Estimates.
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