Severe droughts in China and Texas in the USA are forcing cotton prices higher. The lack of viability in spinning sector and thus the resulting closure of yarn manufacturing activity to some extent following record high cotton prices over the past six months had also reduced supplies of yarn. Then the reduction in yarn inventories resulted in some rise in off take of yarns in the market. Thus cotton prices have made a modicum of recovery both here and abroad.
Local lint pries also achieved a type of steadiness so that at least the decline in fibre prices has halted. Offtake of yarns is also reported to have started. News from India that government may allow exports of raw cotton has also increased prices there. Therefore, there is some welcome activity in both cotton and yarn markets.
It is still premature to say if cotton prices have bottomed out or not. Improved weather in Texas, and possibly China, could provide the desperately needed moisture to the parched cotton fields. In the interim period, cotton and textile activity may make a modest resumption at the prevailing rates.
In the local market, floating cotton stock is barely 100,000 bales from the current crop (August 2010-July 2011) generating little activity, but mills to mills transactions continue to be reported. Exporters, however, are only interested to buy cotton at Rs 8,000 per maund (37.32 kgs) or less. The notional price of seedcotton (kapas/phutti), said to be only for pressing a mere 100,000 domestic size bales left from the current season (2010-2011), is being quoted from Rs 2,500 to Rs 3,000 per 40 kgs in both Sindh and Punjab.
Lint prices have shown some improvement over the past couple of days and thus gained from Rs 50 to Rs 100 per maund (37.32 Kgs). Thus the range of lint prices now extends from Rs 7,600 to Rs 8,600 per maund in both Sindh and Punjab. Moverover, there is some increased enquiry for raw cotton in the market. With passing weeks, there is scope for lint prices to make further improvement in June 2011. Thus the overall picture of the cotton economy is gradually changing for the better.
There has been extensive heat in the cotton belt over the past few weeks, but recent rains there should be helpful to the new crop (2011-2012). Therefore, the development of the new crop may be said to be "so far, so good". New crop in Pakistan may yield 13.5 million to 14 million bales of domestic size. Local mills consumption may be projected in the range of 14.5 million to 15 million bales while imports next season (August 2011-July 2012) could range from two million to 2.5 million bales.
We can say that cotton, textile and the related markets are stabilizing and some quantum of buying is emerging. An initial feeling of recovery is appearing because demand for yarns has occurred because several mills producing yarns were entirely closed or had cut their output. In fact, cotton waste prices have also recorded a gain of Rs 10 to Rs 15 per kilogramme with the market resisting any decline at present.
Last two months or more have seen a steady decline in cotton prices in our market essentially taking cue from the New York (ICE) cotton futures market. After a regular decline, now there is some introspection in the market, mostly gauging the effect of sizeable draughts pestering Chinese cotton areas and the state of Texas in USA which grows nearly half of American cotton. The weather over the next few weeks would be a prime determinant of global cotton prices for the forthcoming season (2011-2012).
On the global economic and financial front, more trouble piled up which is delaying any early global recovery. While Greece, Spain, Portugal and Ireland remain on the sick list, now Greece must sell its precious assets and seek another early bailout from the International Monetary Fund to ensure its economic survival. The peripheral and the laggard economies have now demonstrated amply that Eurozone economies are moving on a twin track, a fast lane economy like Germany on the one hand, and the slow track economies like Greece, Spain, Portugal and Spain on the other hand with Italy also dragging its growth now.
Such dichotomy of economic performance in the Eurozone has often rendered the value of the Euro negatively and is giving rise to conjectures about the very survival of the Eurozone as a single economic entity. A pall of smoke from the Icelandic volcano had overcast the skies of UK and northern Europe early this week, but luckily this problem has subsided at present.
Thus the stock markets in Europe slipped lower on reports of stagnant British economic growth, dismal economic data from the Eurozone, recessionary news from Japan, shaky performance of the United States economy compounded with draught in Texas and tornadoes hitting central USA with over swollen Mississippi river.
In fact, new orders for durable goods in the United States fell sharply since the last six months signifying that the American economy still remains in considerable difficulty. Fears are that manufacturing activity in the USA may be driven down which may result in lost momentum in economic recovery and thus spill the negative impact into the second quarter.
Also, loss exceeding US Dollars two billions by the Japanese electronic giant Sony signifies that economic recovery in Japan will take more time to materialise. Moreover, the specter of stagflation is hitting many parts of the world including the USA UK, the Eurozone and China.
Besides the economic and financial issues, the war on terror involving several countries and the world, the socio-political unrest in the Middle East and North Africa, a spate of Taliban bombing including the leading Naval base in Karachi this week, all add up to demonstrate that a new social, economic and political dispensation is necessary to bring order to the prevailing global disarray.