With Eid-ul-Azha holidays just around the corner cotton purchase activity has decreased. The next week will mostly be consumed with festivities and celebrations so that almost all business activity will be closed. Over the past week or ten days, larger buying of cotton took place as several mills replenished their inventories to tide over the extended holiday period which will practically last till the beginning of the third week of this month.
Local cotton prices for the upland styles have been fifteen to 25 cents per pound cheaper compared to similar imported cotton. Turnover was respectable in a generally steady market over the past week or ten days. Yarn offtake is slow even if yarn prices have not fallen proportionate to the fall in lint prices. With Eid festival beginning on 7th November 2011 viz next Monday, business has become occasional. Even transport facilities have become scarce.
Seedcotton (Kapas/Phutti) prices in Sindh reportedly ranged from Rs 2,000 to Rs 2,400 per 40 Kgs, while in the Punjab they are said to have ranged from Rs 2,200 to Rs 2,600 per 40 kilogrammes in a listless market. Lint prices in Sindh reportedly ranged from Rs 4,000 to Rs 5,300 per maund (37.32 Kgs) on Thursday, while in Punjab they are said to have extended from Rs 5,100 to Rs 5,500 per maund. Cotton sales are said to have been sporadic.
According to the Pakistan Cotton Ginner's Association (PCGA) seedcotton arrivals report for the current season (August 2011 - July 2012) till the 1st of November, total receipts were 6,703,740 domestic size lint equivalent bales against last year's arrivals of 6,071,644 bales for the same period. From this quantity, domestic mills picked up 4,713,573 bales, exporters lifted 188,457 bales while an unsold quantity 1,801,710 bales remained with the ginners in both pressed and loose form.
Due to low domestic lint prices, some exporters were said to be interested in the market but they did not exhibit any extraordinary anxiety. Trade was mostly dormant or moving at a snails pace. Traders assessed that this season's (2011-2012) domestic crop could give an output ranging from 13 million o 13.5 million domestic size bales of cotton on ex-gin basis. Local mills may consume between 13.5 million to 14 million bales while exporters may ship half million to one million bales. Mills may import between one million to 1.5 million bales during the current season.
International cotton trade lacks volume at present and thus sales activity is relatively low. Fibre prices around the world are under pressure due to the Eurozone financial and economic downturn which this week has become more serious. Fears of a weakening global economy leading to a recession has kept most markets on the edge. Nervous investors are worried about the instability in the Eurozone and the possible contagion it will engender not only in Europe but in most other parts of the world. Therefore cotton is now showing a weaker tendency.
On the global economic and financial front, after two year's delay by the Eurozone to put its house in order, heavy weights Angela Merkel of Germany and Nicholas Sarkosy of France finally put up a respectable mechanism at the middle of this week not only to bail out the floundering Greek economy from bankruptcy, the twosome along with their colleagues also proposed a large one trillion Euro fund, writing off half of Greece's loans and extending its debt repayments. However, on last Thursday Greece's Prime Minister Papandrou suddenly announced that he would put these proposals to a public referendum for approval. This move nonplussed the entire world.
Is Greece playing Russian roulette? The jigsaw puzzle of Eurozone economy and finances received another setback sending ripples around the world which plunged the equity markets almost everywhere. The referendum may actually determine if Greece wants to stay in the Eurozone or opt out. Confusion abounds and complicity increases with Greece's decision to hold a referendum to accept or decline the Eurozone's proposals to save Greece from sinking to unknown socio-economic and financial debts.
The economic condition of Italy is also being defined as extremely serious. The borrowing costs of capital in Italy have become staggeringly high. To attend to these extremely serious issues, the G20 leaders were to meet at Cannes on Thursday. Germany and France are asking Greece to make up its mind because it can only be bailed out if the people of Greece agree to it in the referendum. Most Greeks appear to reject any proposal of a bailout by the leaders of the Eurozone. In such a situation, Greece will not get any money and will move towards a default. Italy is also sitting on a mountain of debt.
Greece fears that under the bailout terms it will have to go on repaying over the next couple of decades or more. With Spain, Portugal, Belgium, Iceland and Ireland already in the economic doldrums and have similar problems like Greece, Eurozone may not have the resources or the money to bail out all the sick economies of Europe.
Under the circumstances, Eurozone also cannot be distanced from other economies of the world, including the United States, the United Kingdom, China, Brazil and India. The bankruptcy of MF-Global has further undermined global financial confidence. Some hopes were raised when dizzy investors anticipated that Federal Reserve Chairman Ben Bernanke may keep money flowing easily and the money markets in Europe could see a relaxation in money supply by the European Central Bank (ECB) before the end of this year.
Surprisingly, it may be noted that unemployment in Germany rose in October 2011 as per latest available data, adding to fears that Europe's largest economy may slow down and in turn effect other laggards which form the peripheral economies of the Eurozone.