Analysis: Cotton trade dull, prices almost stay put

KARACHI : Subdued trading was seen on the cotton market amid shortened week due to the Eid-ul-Azha holidays, relevant sources said. The spot rate firmly held the present level at Rs 2075 during the shortened week. Commenting on the lack of buying interest on the part of the leading buyers, sources close to the textile circles said, primarily activity came to nearly halt on non-availability of the transports and secondly they (buyers) felt it’s better to make new purchasing after Eid holidays when the clear-cut situation would emerge concerning the prices and availability of cotton stocks.

Some analysts explained that the latest developments, such as rise in demand by the importing countries, likely to push up prices due to tight supply of fine quality cotton.

The Trading Corporation of Pakistan (TCP) was away from the market these days as it had been asked to stop buying and has been already delivered 1.3 million bales of cotton so far.

WORLD SCENARIO: The trading in cotton in NYCE was merely for two days, Monday being closed on Martin Luther King Day and in Pakistan was cut short by two days due to intervening Eid-ul-Azha holidays. However, while prices in Pakistan stayed firm futures rates were driven higher due to speculative buying.

The Monday session was off, but on Tuesday futures settled near the session highs on speculative buying and steady interest by speculators could drive the market higher after a holiday break. Traders observed that there was a tug of war between trade selling and specs, and added that the specs won the battle simply because they have ‘more money.’

While the market is plagued by the bearish factor of record crops in the US and places like China, the funds have apparently decided to go long in cotton and are buying up the market, analysts said. On Wednesday futures finished higher at a 14-week peak on speculative fund buying with fibre contracts seemingly poised to run higher in the days ahead.

Traders observed that funds have covered several thousand lots of their short position and are itching to buy further. Analysts say the record harvest in 2004-05 will not likely be repeated while global cotton consumption was seen staying strong over the coming years, pointing in particular to robust fibre consumption in China. The March opened higher at 46.71 and ended sharply higher at 47.96 cents a pound and May opened up at 47.70 and closed at 48.95 cents a pound.

LOCAL TRADING: Lacklustre trading was marked on the local cotton market evidently because of more than one factor which had taken off interest from the sellers and buyers. The means of transportation not owned by all the buyers was engaged by faithfuls who needed trucks for carrying purposes of the sacrificial animals.

However, consumers also halted buying because of expected PCGA statement on arrivals. The reports also hinted that TCP had to stop continued buying owing to its wait for release of fresh money from the central bank. The spot rate was unchanged at Rs 2075 on Monday.

The ready business was said to be nil on Monday, the record cotton production had forced buyers to look back and know how fast they should go. On the second trading day, again holidays ahead and transportation problem led spinners to buy if they had their own trucks or trolleys. Still change of hands was just a few bales.

Thus phutti in Sindh was priced at Rs 800/930 and in Punjab it was Rs 800 and Rs 950. In ready ruling cotton prices were Rs 2100 per maund. On Tuesday trading depicted usual lacklustre conditions as buyers/sellers seized the opportunity to exchange sky rocketing prices of the sacrificial animals.

They expressed their views as to how market would react when session will resume normal business after Eid-ul- Azha holidays. Spot rate was unchanged at Rs 2075. However, concern was expressed by relevant people cotton availability may not be enough despite production glut in the country and all the cotton producing countries.

On Wednesday a couple of deals were struck although sellers and buyers both had perception of price rise. Spot rate was put at Rs 2075. Phutti stayed steady in Sindh and Punjab. Ready Punjab price of cotton was Rs 2125. A scenario change is being expected by the market operators on market resuming normal business after Eid holidays.

MATCHING DEMANDS: Who will consider demand raised by PRGMEA for instant and effective solution to the problems such as subsidy and GST abolition? No doubt demands should always be and remain subject of respective departments. But initially textile ministry should look into the worth of the complaints or demands and recommend for the solution and the way it thinks should be solved or rejected so that relevant departments are spared from hassles and likely corruption involved.

Knowledgeable sources opined. Quite often such demands are forwarded that if accepted well and good and if rejected will be paltry loss of some piece of papers and typing and despatch cost. However, the fact is the WTO system brings in its wake more challenges and more risks to be fully undertook and tackled by the exporters of apparel and garments.

The government with more resources and contacts and work force., at the outset of the WTO regime listen to every genuine and solvable solution. The bad luck, they said, is that the value added and apparel makers have hardly been paid due attention resulting in textile exports, 67 percent contributors to the total export earnings remained stuck up for years and years at $8 billion.

The Pak exporters circles alleged bad practice and in that authorities fully co-operated to sell semi-raw material worth a pound eight times less compared to value-added products value.

Coming back to PRGMEA demand that is visible to naked eyes and solution has been sought. The body has showed concern about 12.5 percent duly consequent upon scrapping of GSP zero duty scheme. Besides that substantive facilities have been provided to apparel exporters from the competitor countries like China, India, Bangladesh etc the BD has dropped VAT etc.

PRGMEA apprehends unless some matching measures were not taken will drive 600 small industries of f track and as estimated 50,000 workers go jobless. Initially the garment manufacturers be given 12pc subsidy and doing away with 15pc GST ensuring exporters to be alike to compete.

RECORD COTTON PRODUCTION: The cotton production at 14 million bales plus makes this year unprecedented for couple of factors. The growers had or were so convinced about WTO inception on January 1, 2005, will see orders for imports looming. So acreage had been raised and the natural diseases have also spared the crop.

It may be that growers and agriculture field workers took extra pains and deterred pest attacks and other setbacks without much ado and fanfare usually is seen to unnaturally please one or the other interests. The growers in Punjab and Sindh increased cotton sowing area, but remained apprehensive about natural and man made hurdles more particularly in upsetting price trend. Some interests at times look TCP induction and longer stay against them. But determined authorities have stalled any effort to break the chain.

The result has been that spinners and textile millers have acted like partners in trade and have lifted 1.450 million bales and TCP has in its godown 1.070 billion bales. Exporters despatched 0.456 million bales. The textile millers appear to have an eye on the future when they will demand more cotton to meet the demand in days to come.

Only a couple of years back the spinners/textile sector had imported over 1.5 million bales just to keep local cotton prices depressed and putting ginners at great loss. Now textile millers cannot think likewise staking availability lest cotton growers switch over to some profitable crops. In this connection authorities have struck a balance to ignore procurement price at Rs 925 not being honoured, to see stocks get thin and thinner.

Cotton availability is expected until March and millers will lift cotton as and when they so decide despite in due course of time steadily rising demand of cotton and price. The exporters of madeups remain on guard despite supposed WTO regime stood for free trade. Within days January 3, 2005 Pakistan felt the pinch of countervailing duty while China and Bangladesh coming under what they called “under review.”

The fact has signalled that not all is well. Prosperous nations sit back on agriculture subsidy for shaky one year and arrangements to desist – attempt of disruption of markets.

TAIL PIECE: What’s wrong if govt had announced on December 9, 2004, that it would help airlift the consignments of exporters of US held up due to embargo. It was fair enough. But it seems that reasons not expressed explicitly exporters with US consignments failed to deliver goods at the destination as firmly had been directed sometime back.

The govt seems to have taken the plea that time period be extended a bit to see consignments through. The authorities took the request as an exception and sprang to tell exporters that exporters will have no chance to despatch consignments on govt expenses.

The exporters may have some genuine reasons to ask authorities to extend favour or they will take grievances to the media. The commerce ministry has countered the exporters by firmly telling them attempt to blackmail won’t work.

Courtesy: Business Recorder

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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