COTTON: Trading activity on the cotton market remained upbeat once again as the official spot rate climbed up another notch, hitting Rs 6,700 at the end of the week. An appreciation of more than Rs 200 during the week saw Phutti prices go up as high as Rs 3,300 per 40 kg in various parts of Sindh and Punjab while lint prices in the open market climbed even higher, fluctuating between Rs 5,800 and Rs 7,000 per 37 kg.
The demand for fiber in the country has climbed up during the last month or so, even as prices firm up both as a result of international fundamentals as well as rapidly depleting local supplies. As a consequence, mills have been scurrying to stock up as a favourable price differential in the international market continues to make exports of both low value and high value added textiles the most lucrative in recent times.
The volatility in the prices of softer commodities such as cotton is set to continue internationally as well, with a largely bullish trend being exhibited on the futures front lately.
As the global cotton production gets ready to slough off 4 percent year-on-year as a result of slippages in harvested areas in the Southern Hemisphere, fiber prices have firmed up with speculative buying takes its toll.
Having risen nearly 14 percent since the start of CY13, ceilings on the overbought fiber futures market have came down slightly as the most-active May cotton contract on ICE Futures slid by 0.74 cent during the course of the week. Settling at 86.50 cents/lb, the slip comes after a 7 session rally that has been the longest since the start of the year.
RICE
The Asian rice market remains tight as USDA reports an upwards revision of estimates for production with 2 South Asian countries which is likely to retain the pressure on prices in the region. Thai rice prices in the meantime have shown some strengthening amidst a healthier Baht and tighter exportable supplies of the finer fragrant varieties; however prices for the lower qualities have continued to show a downward trend this week.
A similar trend was seen this week in quotations for Vietnamese rice which has been ailing during the year amidst a lack of adequate takers and mounting supplies.
Pakistani rice in the meantime remains unchanged on the price front. Exports to China remain undeterred however; Pakistani exports to Iran have been affected in recent times due to a shift where Iranian importers are once again buying from the Indian market.
Having reaped the benefits of tighter imposition of rules for bank transfers and credit sales between India and Iran, Pakistan had managed to capture a major portion of Iranian market during 2012. However a greater availability of Indian Rupees with Iranian importers has allowed them to pay upfront for purchases, a fact that is set to hurt Pakistan's export stats, which will see some shrinkage on account of lower sales made to the region.
SUGAR
This week the wholesale prices of sugar hovered around Rs 4960 - 5100 per quintal across the country. The prices of sweetener gained stability since exports commenced followed by government decision to provide FED reduction to the sugar mills on the local sales equivalent to the export quantity.
The second half of this week witnessed sugar prices picking up a notch as the government announced that it would provide sugar millers a freight subsidy of Rs 1.75 per kg on the export of 1.2 million tons of surplus sugar. The rationale behind this decision was to catalyze the slow export process so as to do away with the liquidity problems the millers are facing and to expedite the process of payments to farmers.
Najib Balagamwala, CEO of Seatrade Private Ltd, informed BR-Research that nearly 350,000 - 400,000 sugar export contracts have already been registered with the State bank of Pakistan and the pace of sugar exports is gaining thrust due to incentives provided by the government.
The purpose of export facilitation is to support the price of sugar in the local market, as currently, the industry is not at a breakeven point. Resultantly, sugar mills are not undertaking full capacity utilisation and operating at around 60 percent of their capacities.
Najib further said that the price of sugar contracts at London Sugar Market hovers around $500 per ton, giving Pakistani sugar one of the most competitive positions in the international market. Currently, Pakistani sugar is in high demand in Saudi Arabia, Somalia, Sweden, Djibouti, Malaysia etc.
However, majority of Pakistani millers produce large or medium grain sugar which has limited world-wide acceptability. To gain more export contracts, Pakistani millers should focus on producing more 45 ICUMSA sugar and raw sugar which is in high demand globally and would enable Pakistan to fetch the contracts of over $750 million every year.
Until February, Punjab, the biggest sugar producing province has witnessed the sale of 21.24 tons of sugar from farmers to millers. Moreover, on the payment front too; a satisfactory level of 86 percent dues has been cleared.
On the international front, sugar glut has pushed the prices down considerably. There have been talks of cancellation of deliveries of sugar future contracts as millers in Brazil have greater incentive to produce ethanol instead of sugar.
Talking about prices, May 2013, No. 11 raw sugar contract at ICE settled at 18.75 cents/lb, while No.5 May 2013 white sugar contract at LIFFE was traded at $534.10/ton as of March 09, 2013.
WHEAT
Wheat wholesale prices ranged between Rs 3200 - 3350 per quintal. While the prices of wheat flour of different varieties lingered between Rs 40 - 49 per kg, with Chakki atta (flour of small flour mills) topping the price list.
To stabilise the prices of the commodity and to retire bank financing, PASSCO has decided to offload 0.6 million tons of wheat stocks out of its total stocks of 2 million tons, at Rs 1100 per 40-kg (without bags) in the domestic market.
In the wake of sufficient crop anticipated this year, PASSCO wants to export 1 million tons and reportedly is getting attractive deals of $300/ton and above, from countries like Brazil, Saudi Arabia, Bangladesh and Japan. However, the government is yet to respond to PASSCO's request filed since December 2012.
According to industry insiders, the new support price of Rs 1200 per maund effective from April 2013 will reduce the demand of Pakistani wheat in the international market. Thus, trade circles assert that the procurement price should be revised to Rs 1100 per maund so that there are some exports in the upcoming season. Otherwise, there will be high possibility of superfluous sales to the local bulk buyers, facilitating them to hoard and trade the commodity illicitly.
Currently also, authorities doubt the millers to accumulate the commodity and export it illegally to various regions of Afghanistan, and in the next season too, if there is no check kept on the activity of millers, artificial shortage and local price hike will be rampant as the commodity is in high demand globally.
Looking at the global scenario, according to USDA, global wheat production may reach a new record in the coming year, easing the tight supplies and raising the probability of price drop.
According to FAO, the hike in production is expected mostly in Europe, triggered by augmented plantings of wheat in response to high prices and a revival in yields in some countries, particularly the Russian Federation. The outlook in the US, while less favourable because of earlier drought conditions, has improved to some extent over the last few weeks.
On the prices front; US hard red wheat for Gulf delivery settled on $315 per ton, on March 09, 2013, as against $299, a year ago. While the EU France grade-1 wheat clocks in at $316 per ton, as against $287 per ton, last year.