Cotton prices well maintained at peak levels

25 Dec, 2009

With the approaching of an extended weekend when Friday (Quaid-e-Azam Birthday and Christmas) and next Monday (Ashura) are public holidays, and also closeness to the end of the calendar year, domestic lint prices continued to maintain peak levels being highest ever recorded in Pakistan for ready cotton.
Good quality cotton has been selling over the past several days at Rs 4,550 per maund (37.32 kgs) in ready business which is the highest price for lint ever recorded in Pakistan for ready delivery. A couple of transactions have also been reported at Rs 4,600 per maund, but they involve credit terms varying from 10 to 15 days time.
Seedcotton (kapas/phutti) prices have also been rising in tandem with lint prices. Soaring yarn prices and net deficit in cotton supply needed this year (August 2009-July 2010) compared to domestic consumption figures are directly responsible for the spurt in cotton prices.
Moreover, global shortages of cotton compared to earlier assessments coupled with the weakening Pakistani rupee have imparted additional strength to Pakistani yarn prices. High cost of borrowing in Pakistan has also added to the rise in cost of commodities, goods and cost of manufacturing.
Thus on Thursday domestic seedcotton (kapas/phutti) prices maintained their highest level in the range of Rs 1,800 to Rs 2,250 per 40 kgs in both Sindh and Punjab. Similarly, lint prices also remained perched at the historically high range of Rs 4,350 to Rs 4,550 per maund (37.32 kgs) in both Sindh and Punjab according to the quality.
Current assessment of this season s (2009-2010) cotton output in Pakistan is being put between 12.75 million to 13 million domestic size bales. Pitted against this output, mills consumption in Pakistan is being now computed in the range of 15.25 million to 15.5 million bales of domestic size, which could entail an import of about 2.5 million or even 3 million bales (170 kgs) for the current season.
Over the past few months, the apparel industry in Pakistan had been complaining about the high prices of local yarns and were also complaining of yarn shortages in the country. In their retort, the textile mills owners claimed that there was sufficient quantity of yarn available in the market and any increase in yarn prices is the function of parallel increases in the cost of production including increases in the prices of gas, electric supply, wages and high cost of borrowing.
Apparel and value added textile groups demanded a ban or control in the exports of yarns to assist the value-added sector, but the mill owners said that they had just started to recover after a number of lean years and any control, restriction or ban in yarn exports would not only close down several spinning units, but such steps would b e counterproductive and harmful to the textile industry at large.
In its wisdom, the federal government is reported to have decided to eliminate five percent custom duty on yarn to allow the end users to buy yarns at international prices. Furthermore, any other corrective steps would be taken if yarn export figures exceed 50 million kilogrammes per month.
Moreover, the Cabinet Committee on Textiles which was chaired by the Textile Minister Rana M. Farooq Saeed Khan, who was reviewing the production prices and market availability of yarn also reportedly decided the yarn exports will only be allowed against letters of credit and advance cash received through normal banking channels and after the registrations of contracts have been made with the Trade Development Authority of Pakistan (TDAP).
In this connection, Mian Shahzad Ahmad, vice chairman of the All Pakistan Textile Mills Association (APTMA) said the free trade policy is the best policy which has always benefited all the stakeholders. The value added sector and the apparel sector in Pakistan will now have the opportunity to import yarns from different global sources at the international prices without any restrictions or import duty. Any forcible reduction in yarn export would ultimately depress cotton prices which will be very detrimental to the growers of cotton.
Spinners are of the view that there is enough yarn supply in the country and that increase in its cost is due to increase in the cost of production. The spinners claim that any idea or suggestion cannot be taken in isolation and that a holistic view has to be taken about the entire textile industry and its sundry problems. The spinners are also constrained by their sundry difficulties and problems.
On their part, the apparel manufacturers are very unhappy with this interim step of the government to allow duty free import of yarns because yarn prices have shot up internationally. According to M. Javed Bilwani, Chairman of the Pakistan Apparel Forum, the concession of five percent reduction in custom duty on imported yarns was already being enjoyed by the apparel industry under the DTRE procedures.
Bilwani has strongly opposed the government decision to continue to allow exports of cotton yarn and has called such a policy as suicidal for the apparel industry. Bilwani has alleged that the government is playing into the hands of the spinners and as a result a disaster is looming large for the value-added industry.
The price of seedcotton (kapas/phutti) in both Sindh and Punjab ranged at record levels extending from Rs 1,800 to Rs 2,250 per 40 kgs according to the quality. Similarly, lint prices in both Sindh and Punjab continued to stay put at record levels ranging from Rs 4,350 to Rs 4,550 per maund (37.32 kgs) and the sentiment of the cotton prices was described to be steady to tight.
Till early evening, 400 bales from Daur in Sindh were reportedly sold at Rs 4,350 per maund (37.32 kgs), while 1,000 bales from Shahdadpur were said to have been sold at Rs 4,400 per maund. In the Punjab 1,000 bales from Rahimyar Khan were said to have been sold at Rs 4,500 per maund. Last week a couple of transactions were said to have materialised at Rs 4,600 per maund, but they were on credit basis.
On the foreign economic and financial front, the calendar year is approaching a fast end with remarkable net gains in almost all the equity markets. However, two pertinent points are particularly bothering the global leaders and economic managers. First, paradoxically the global unemployment continues to rise despite claims of improving economic condition in several leading countries.
Secondly, the massive stimulus packages continue to be provided in one form or the other in United States, Germany, Japan, the United Kingdom and elsewhere which has indebted these countries for decades to come. Moreover, the utter failure of global leaders to tackle the urgent and formidable issue of climate change recently in Copenhagen has been an unmitigated disaster.
In any case, the giant banks in the leading economies may be booming with profits and paying large bonuses to its bosses, a large cross section of lower and middle class managers, workers and other operatives are becoming destitute and see no immediate help or respite in their pitiable condition. Therefore, it seems hard to see how an even, equitable and sustainable global recovery can come about without some fundamental changes to the economic structure or model which we may emulate and adopt.

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