Pakistan Cotton Ginners' Association has released its periodical cotton figures according to which seed-cotton equivalent of 0.995 million bales reached ginneries by 1st September, 2010 against 1.291 million bales received last year - a decrease of about 23 percent.
Apparent reason for this decrease may be intermittent suspension of arrivals due to rains. Floodwater in on its last leg and has started falling in Arabian Sea. Weather during the last week remained almost dry. Bright sunshine and moderate temperature is helping cotton crop recover some of its damage. Now, most of the damage estimates are converging around 2.0 million bales. Quality of lint cotton has improved specially in Sindh. Due to Eid holidays, which may practically take full one week, cotton operations would remain suspended.
Most of the crop estimates are still between 12.5 and 13.0 million bales. After expiry of this month, which appears crucial for cotton crop due to possibilities of pest - diseases attacks, estimates of crop damage may become more realistic. Cotton operations would take boost after Eid holidays. Taking into market conditions, domestic cotton consumption may be placed around 14.5 million bales. To meet the short fall of our production, Pakistan's total imports may be around 2.5 million local weight bales but some circles put it between 4.0 million bales. In 2009-10, Pakistan imported cotton equivalent to 1.8 million bales. Last season, Pakistan exported around 0.9 million bales but this season, our exports may be around 0.5 million bales.
During the last week, cotton prices improved by Rs 200 - 300 per maund and on last Saturday lint cotton was traded between Rs 6,300 - 6.600 per maund ex-gin both Sindh and Punjab styles. Quality of Sindh cotton has improved particularly in grade which is coming close to Middling with staple 1-3/32 - 1-1/8, G-5 and GPT 30+. Spinning mill buyers have flocked in Sindh for cotton procurements. The ginners complain that working on the present level of seed-cotton prices is not profitable and the spinners say that present level of lint cotton prices are not compatible with yarn prices. Workable lint price should be between 6,000 and 6,100.
Also these prices are not viable in exports. On the basis of Rs 6,400 per 37.324 Kg ex-gin, FOB Karachi works out to around US Cents 95. 50 - 96.0/lb. The exporters who sold cotton at lower rates are finding it difficult to cover at high prices and are waiting for the prices to come down below Rs 6,000. Since start of new crop, cotton prices have widely fluctuated which leads to increased possibility of defaults in performance of contracts in domestic as well as export trades. Since simultaneously buying and selling of cotton is very difficult so the traders take positions i.e. either they go long or they go short. In both cases, if the market goes against their decision, they have to go in loss. In Pakistan, neither there is future trading nor there risk management instruments. In a markets with wide and fast fluctuations in prices, the need for Hedge Trading increases.
Cotton prices in international market are high and Indian S-6 is quoted above US Cents 100 /lb level. New York Futures are close to 90 cent level. US export sales have been quite aggressive in the last many weeks. Actually, the trade expect decrease in NY future values and so most of the US cotton sales are on On-calls. Let Physical movement of US, CIS, Indian and African cottons to buyer countries start, cotton prices may go bearish.
Rains in India have brightened prospects of a bumper cotton crop between 32.5 and 35.0 million 170-Kg bales. In a recent meeting of Textile, Agriculture and Commerce ministries, it has been agreed that a) Export of New crop (2010-11) cotton is allowed duty-free from 1st. October, 2010, b) All cotton export contracts will be registered with the office of the Textile Commissioner, India effective from 15th September, c) All registered cotton need to be shipped with 30 days frame period, d) Export limit of 5.5 million bales has been fixed for 2010-11 crop.
However, export performance will be reviewed in middle of November month and export limit may be revised depending on the situation, these decisions have been taken in the interest of domestic textile industry to keep cotton prices at reasonable level and cotton trade. If India harvest a bumper crop between 32.5 and 35.0 million 170-Kg bales, there are bright chances of increasing the export limit up to 6.5 to 7.0 million bales.
In 2010-11 cotton season, cotton has been sown on about 1.2 million hectares against 9.8 million hectares in 2007-08. This time, 90 percent of Bt cotton has been sown in India and increase in cotton production is projected above 10 percent over last season's production of 29.5 million bales. Indian exports of textiles and apparels are facing tough competition from the counter- parts of Bangladesh in USA and European markets one foreign report says. The report further says that Bangladesh secured positive growth of 3.6 percent in its apparel exports to USA and European destinations in 2009 while its major competitors like China, India and Turkey experienced negative growth. Bangladesh performed better than India in US markets despite recession in 2009.
According to FICCI report, shares of Bangladesh, Indonesia, Vietnam and China increased by 0.5%, 0.4%, 0.67% and 4.3% points respectively in US imports while Indian share increased by only 0.17% in 2009.
Chinese crop has started moving into markets in early cotton sown areas of Eastern China and Xingjian and harvesting may become general in the second or third week of this September month. To check rise in cotton prices in the domestic market, Chinese government had released 600,000 metric tons of cotton from governments reserves for sale to local spinning mills through open auction of which more than 40% has already been disposed of. This release of domestic cotton has diverted.
Pakistan is apparently in the grip of very poor economic, unstable political, poor safety and security and deteriorating law and order situations which endanger its integrity, economy and political systems what to speak of making any progress. The unprecedented devastating floods would have far reaching ill-effects on our economy which may jeopardise social and political structure of the country. Pakistan could cash the opportunity of becoming the third largest exporter of textiles but Pakistan may miss the chance and take seat in back rows.