Since the beginning of last month, cotton prices have jumped up by Rs 600 to Rs 700 per maund (37.32 kgs) creating a new record for the highest price of lint ever recorded in Pakistan. Similarly, seedcotton (kapas/phutti) prices also rose commensurately so that the increases in both seedcotton and ginned cotton prices appeared to rise in tandem with each other.
Though China remained a prime factor to initiate global price increases in lint following reports of a shorter crop there than previously anticipated, lower output in India than projected earlier coupled with remarkable increases in the prices of yarns and other products in Pakistan and elsewhere are also instrumental in promoting increase in cotton prices. Moreover, dollar-designated fibre prices against a depreciating greenback also contributed significantly to prop up cotton prices globally.
With a net deficit in cotton demand and supply balance sheet in Pakistan this season (2009-2010), it is axiomatic that lint prices would show a phenomenal increase. Thus on Thursday seedcotton (kapas/phutti) prices picked up to an unprecedented range from Rs 2,100 to Rs 2,300 per 40 kgs in both Sindh and Punjab. Similarly, lint prices also jumped higher to a record range of Rs 4,300 to Rs 4,500 per maund (37.32 kgs) in both Sindh and Punjab according to quality.
A very tight pattern of cotton prices continued to be witnessed till late in the evening. According to Naseem Usman, a cotton consultant at Karachi, the Pakistan Cotton Ginners Association (PCGA), seedcotton (kapas/phutti) receipts till the 1st of December 2009 were recorded at 10,427,737 lint equivalent bales of domestic size which is 2,091,502 bales more compared to the same date during the previous season (2008-2009).
Domestic mills have lifted 8,284,941 bales from the above output, while the exporters have purchased about 627,018 bales. Ginners are therefore left with 1,515,778 bales with them. According to market sources, the current idea of the season (2009-2010) cotton crop output in Pakistan is being projected at 13.5 million bales (170 kgs is standard weight). Actual size of cotton bales is smaller in certain cases.
This anticipated output is on an ex-farm basis so that actual turnout from the ginning factories could be close to 13 million bales. With activation of more spindles, spinning of relatively more coarser counts of yarns and continuously sustained enquiry and sale of yarns to China and elsewhere, mills in Pakistan are expected to consume nearly 15.5 million domestic size bales. Recent spurt in local cotton prices has made Pakistani cotton exporters incompetitive.
In fact, they are said to be settling their earlier foreign sales and thus selling some of the lint they had covered earlier in the local market to the mills at home. Cotton already shipped during the current season up to end of November 2009, including 54,000 bales from the previous season (2008-2009), is said to be about 480,000 bales of Pakistan size.
As seen today, cotton exporters in Pakistan may only be able to export 500,000 domestic size bales this season and are likely to be outpriced by the purchases of the domestic mills for the remainder of the season. China is buyer for all cotton products and by-products from Pakistan like lint, cotton waste and yarns, particularly of the coarser counts. Cotton season in Sindh is initiated earlier and therefore also finishes earlier.
Therefore, several ginning factories in Sindh have closed down or have reduced their working by several hours. Under these circumstances, mills in Pakistan have increased their enquiries for imported cottons and are seeking viable rates from several origins to replenish their inventories.
In actual cotton sales reported till Thursday evening, 400 bales from Sarari in Sindh sold at Rs 4,350 per maund (37.32 kgs), 2,000 bales from Shahdadpur sold at Rs 4,300/Rs 4,350 per maund and 200 bales from Daharki in upper Sindh (K-68) are said to have been sold at Rs 4,500 per maund. In the Punjab, 500 bales from Muridwala, 1,000 bales from Bagh-o-Bahar (Khanpur), 3,000 bales each from Rajanpur and Rahimyar Khan all sold at Rs 4,500 per maund. In the evening, there were buyers for upper Sindh (K-68) cotton at Rs 4,500 per maund but there were no sellers.
Under these bullish cotton and yarn conditions, apparel and garment makers in China, India, Pakistan and elsewhere are worried at the rapid increases in prices of yarns. In response to this development, federal government decided last week to monitor the exports of cotton yarns to ensure the viability of the value-added sector through the ministry of commerce. In this regard, Chief of Pakistan Readymade Garments and Exporters Association (PRGMEA), Ejaz Khokhar, has appreciated the government move.
In response to the yarn shortage claim by the end-users, the vice chairman of the All Pakistan Textile Mills Association (APTMA), Shahzad Ahmed, told a press conference held last week at Karachi Press Club that yarn production had gone up by 20,000 tons to a total of 245,000 tons in October, 2009.
Shahzad Ahmed lamented the propaganda against the spinners and said this could hurt the end-users if they reduced or closed their operations in fear of government intervention. He said government intervention would be detrimental to the textile industry at large, including the apparel and garment manufacturers. He ascribed increase in yarn prices to increase in raw cotton prices up to thirty percent compared to last year.
On the foreign economic and financial front, several news kept coming showing improvement or scope of rehabilitation. However, Dubai World's announcement last week that it seeks moratorium on repayments of its billions of Dollars of loan by its creditors for six months put a spanner in the works. Investors feared in case more crises like the Dubai debacle are ready to emerge from other parts of the world. However, the furor over the Dubai World s disclosure of repayments problems has subsided over the last two or three days.
Then the announcement by the Bank of America (BOA) to repay its US. Dollars 45 billions the bailout money it received earlier to the government within a few days came as a surprise. Commentators felt that even if BOA's financial position has recovered, it could pay back gradually and not in one go because if recessional tendencies in the world prolong or encounter a second round, BOA may be facing trouble again.
Skeptics continue to believe at best the American economic recovery is fragile, the Chinese recovery is also patchy, the Russian economy is a shambles and if Dubai-like defaults are replicated, the double dip global recession would not be far behind. If gold has any symbolic value in relation to the global well being, then investors are fearing another economic downturn with the glittering metal having shot up to Dollar 1,220 per ounce in Europe on last Wednesday being considered a safe heaven in these hard and disturbing times.