COTTON: The high days for cotton prices might soon come to an end as the world's biggest cotton consumers announce their plans to sell from their cotton stock in a bid to cushion local industries against the ungainly rise of fiber prices in these crucial markets.
Despite the presence of ample global inventories, prices have been consistently firming up over the last few months as Asian hoarding put its share of pressure on supplies. Higher demand consequently drove up prices in open markets, squeezing margins for mills.
Speculation about Beijing's purchases- which are set to eat up half of the world's cotton surplus in the ongoing year- has also driven up prices on futures markets. Having crossed the 90 cents/lb level during March, the futures saw a setback during this week, as the hard hitting news drove down the May cotton contract on ICE Futures by 2.03 cents on Wednesday. Settling at 89.10 cents/lb, this was the largest slip in the contract price since January.
The Chinese decision to offload 3 million tons of the stockpiled fiber comes at a time when prices in the local markets are as much as 50 percent higher than international prices, turning mills on to seek imports of raw and lower value added yarn.
On the local front, the week saw less than dramatic movements on the price front. One of the best performing commodities on the local market, cotton remains strong for the time being as sources report a lack of sufficient unsold stock existing with ginners. Buying by mills thus helped sustain the spot rate, which climbed to Rs6,900 during the week.
RICE
Rice prices in the Asian markets remain lackadaisical as production continues to outpace consumption. Thai prices during the week remained down again despite a price cut offered by exporters as cheaper substitutes flood the markets. Vietnam's price cutting in order to garner buyer attention has also brought prices down this week, with the five percent broken variety down to $400/ton during the week.
Meanwhile, prices for Pakistani varieties remain largely unchanged, with a steady demand from Chinese quarters. A lack of appropriate backing from government departments however has meant that Pakistani rice exporters are fast losing the crucial Iranian market. An improved currency exchange channel has facilitated Iranian and Indian rice trade as a result of which rice exports to Iran have faced a steady decline during this season.
WHEAT
Wheat prices took a sizeable dip this week, owing to the influx of the new crop from Sindh and the release of 0.6 million tons of wheat stocks held with PASSCO.
While the new grain is available with a price tag of Rs 2900-3000 per quintal, last year's stock has shed Rs 200 per quintal, trading at Rs 3100-3200 per quintal. Industry insiders told BR Research that the reason behind the trading of new crop below the support price of Rs 30 per kilogram is the excessive moisture content in the crop which increases its weight. Moreover, the crop would take about a month to shed the additional water content.
With the arrival of new crop at significantly lower prices, whether flour gets cheaper or the millers widen their margins is yet to be revealed in the coming weeks.
Earlier this year, prices surged to Rs 3500 per quintal owing to the shortage of the commodity in the domestic market. At that time, market participants had contended that the indolent approach of the food departments in releasing their stocks and the smuggling of wheat by millers, drove the shortage. Consequently, flour prices had surged to Rs 46 per kilogram.
This year, the country is expecting a wheat crop of 23 million tons against the target of 25 million tons due to a considerable decline in the cultivation area owing to the delayed decision to raise the support prices.
Out of the new crop, the government agencies will purchase nine million tons for their strategic reserves at a price of R1200 per maund. Of the total quantity, Punjab Food Department will procure 4.5 million tons; Sindh will procure 1.3 million tons, while KP and Balochistan will buy 500,000 tons and 100,000 tons, respectively. The state-run agency PASSCO has decided to acquire 2.6 million tons.
Looking at the global scenario, wheat prices fell during the week on speculation that a rebound in global output will reduce demand from the US. According to FAO, Europe and the Russian Federation will experience higher wheat production.
On the prices front, US hard red wheat for Gulf delivery settled on $329 per ton, on March 22, 2013, as against $292, a year ago. While the EU France grade-1 wheat clocks in at $329 per ton, as against $284 per ton, last year.
SUGAR
Wholesale prices of sugar lingered at Rs4920 - 4960 per quintal this week. No significant activity was seen in the local trading this week. However, exports picked up pace owing to the incentives attached with the international trading of the commodity.
During 8MFY13, sugar exports from Pakistan stood at $214.4 million. However, market insiders told BR Research that the export alternative might soon lose its charm to the millers as the international sugar prices are continuously declining owing to a supply glut.
Currently, the international price of 100-ICUMSA sugar stands at $475 per ton FOB while 45-ICUMSA sugar is being traded at $500 per ton FOB in the international market. Largely, any price below $525 is not attractive to Pakistani millers. The prime motivation for them to export is to avail the FED reduction of 7.5 percent and inland freight subsidy of Rs1.75 per kg.
The International Sugar Organisation forecasts 2013 global sugar supplies to exceed the demand by nearly 8 million tons, raising the closing stock-to-consumption ratio to 41 percent up from 35 percent since last three years.
Sugar prices fell 39 percent since 2011 and are down 8.5 percent this year, rendering the commodity the worst performer in the S&P measure of 24 raw materials in 2013.
Looking at the settlement prices of sugar futures, this week, May 2013, No 11 raw sugar contract at ICE settled at 18.21 cents/lb, down from 18.89 cents/lb last week, while No 5 May 2013 white sugar contract at LIFFE was traded at $528.40/ton, down from $539.40/ton, last week.