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New crop arrival reports, weak world prices depress cotton market




  • KARACHI (June 28 2004): Harvesting of new cotton crop (2004-05 season) has reportedly commenced in the early sown areas of lower Sindh while sowing is still going on in some areas of upper Sindh and southern Punjab.

    The other day, I saw a sample of cotton which was said to be from a lot of new crop ginned and pressed in Chichawatni. Some reports said that Sindh seed-cotton had been transported to Punjab, while others said that the lot was from local new crop seed-cotton.

    Whatever may be the situation, it is a fact that arrivals of new crop seed-cotton have started when the stock of about 400,000 bales of 2003-04 crop is reportedly lying unsold with the ginners and exporters.

    Perhaps the recent heat wave had helped the new crop reach maturity stage somewhat earlier. Now, temperature has dropped to below 40 due to recent rains in some cotton areas of Punjab and Sindh.

    Early rains are likely to benefit cotton crop while late rains normally damage cotton crop, directly or through pest attack.

    This season, sowing period has doubled to four months because of shortage of canal water, while harvesting period may be extended to six months.

    In this situation, pressure of arrivals in peak months, like November or December, will not be much and cotton prices may remain stable.

    Although official sowing figure are yet to come but trade circles estimate the area sown with cotton around 3.2 million hectares, up 8-9 percent from last year. Thus, on average yield of 600 kg per hectare, Pakistan may produce a crop of 11.30 million 170-kg bales in 2004-05 season.

    If Pakistan harvests a bumper crop of over 11.0 million bales, it would be only because of better weather conditions.

    The other day, Cotton Commissioner Dr Kader Bux Baloch spoke about ‘Cotton Grading and Standardisation System’.

    He mentioned the efforts made by the Government for implementing the Grading System. In fact, nothing has been done in this regard. All scheme is on paper only and neither it has been implemented in any ginning factory nor the table of premia and discounts has been applied on cotton purchases. If this system is implemented in its true spirit, cotton growers would get benefit of more than Rs 3 billion annually in the form of premium which is now denied to them.

    In the budget, the Government has withdrawn the 15 percent sales tax on raw cotton and imposed it on cottonseeds.

    On the one hand, it would be providing relief to cotton buyers/exporters while on the other hand it would simultaneously be creating difficulties for ginners and oil millers.

    With the recent increase in spinning capacity, some 12.5 to 13.0 million 170-kg bales are expected to be consumed locally.

    If Pakistan harvests a bumper crop of 11.3 million bales, it would require 1.7 million bales more, to be met from imported cotton, in 2004-05 season.

    In the current season (2003-04) shipments of cotton equivalent to some 1.9 million 170-kg bales have already been received in the mills while the spinners are reported to have booked so far some 350,000 to 400,000 bales of 170-kg of foreign cotton for December, 2004, and shipment , sensing the apprehension of a larger shortfall in cotton availability.

    Cotton prices are expected to fall on expected larger world cotton output next season. New crop lower Sindh lint has been sold at Rs 2,600 per maund ex-gin for mid-August delivery.

    Cotton prices on local market remained subdued on weak New York advice. The Karachi Cotton Association fixed Rs 3,025 spot rate on last Saturday. Upcountry reports indicate prime quality/prime micronaire cotton is selling between Rs 2,900 and Rs 3,000 per maund, while low grade cotton is quoted at Rs 2,600 to Rs 2,800 per maund. Buying mills has been very slow while the sellers are under selling pressure. Export inquiries are not coming.

    New York cotton futures witnessed wide fluctuations during last week. July contract finished at 50 cents, losing 200 c/pts and touched the level of 47 cents, while October lost only 5 C/pts to close at 53.95 cents touching the low level of 50.61 cents.

    US cotton export sales ( 2003-04 crop ) in the week ending June 17 were 137,800 running bales. USA’s total export sales commitments have reached 13.789 million bales, inclusive of 520,000 bales of Pima cotton, and shipments are reported at 11.620 million bales, inclusive of 479.000 bales of zpima cotton.

    US has also committed exports of 2.001 million bales of 2004-05 crop inclusive of some 44,000 bales of Pima cotton. Main buyers of US current crop are: China 4.944 million bales, Mexico 1.799, Turkey 1.407, Indonesia 0.905, Korea Rep. 0.501, Pakistan 0.500, Thailand 0.478, Canada 0.373, Japan 0.365, India 0.235 and Bangladesh 0.212 million bales.

    On the basis of May, US annualised cotton consumption figures stand at 6.231 million bales against 6.872 million bales of same time last year. US cotton crop development position is reported to be better than last year–75 percent crop is fair to good, 6 percent below fair and 17 percent is excellent. US expects to produce some 19 million bales.

    In 2004-05 season, China has increased its acreage by 16.02 percent from 2003-04 season to 14.63 million acres (5.90 million hectares) and expects to produce 6.67 million tons = 3.0626 million 490-lb bales, up 35.52 percent from 2003-04 season.

    Chinese crop is also progressing well–15 percent has been reported to be in excellent condition, 75 percent as fair, and 10 percent poor.

    The health of spinning and textile sector is not reported good. Slowdown in economic sector has also affected textile sector and according to one report spinning mills in China are struggling to make a living.

    The high priced imports of some 8.0 million bales by Chinese mills rendered them to lose heavily. Stocks of grey cloth are piling up; mills are running under capacity to avoid losses and demand of textile goods is sluggish.

    In fact, China is the engine of textile train and other countries are its bogies. If the engine runs slow how can bogies run fast?

    The international merchants are caught in bearish trend as most of them were maintaining long positions in Hedge Market and were holding unsold stock in the hope of getting better price.

    New York cotton futures have bogged down and demand for ready cotton is also sluggish which has discouraged prices.

    The international cotton prices may continue showing weakness on reports of world larger cotton output to 102 million 480-lb bales in 2004-05 season. The price trend may change if adverse crop reports from prominent cotton producing countries surface up.

    Curtesy: Business Recorder

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