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Analysis: Slowdown in cotton market due to extended holidays next week




  • LAHORE (January 14 2005): Sale activity slowed down in the cotton market ahead of a long weekend next week when Pakistan will be observing Eid-ul-Azha holidays extending for four days from 20th to the 23rd of this month. Already many market operators and functionaries are starting to go to their sundry hearth and homes in different parts of country. Availability of transport to haul cotton from the ginning factories to the textile mills in many parts of the country will become scarcer day by day so that regular business is expected to start again during the third week of this month.

    With impending holidays arriving within one week’s time, lint prices conceded Rs 25 to Rs 50 per maund as sellers became more accommodative. It may be recalled that during the past one week or so, cotton prices had risen from Rs 1900/Rs 1950 to Rs 2100/Rs 2150 per maund (37.32 kgs) in ready business as mills had entered the market to build up their inventories ahead of the long holidays.

    Now that we have entered the quota-free period since the beginning of this month, Pakistan’s mills are receiving very good enquiries for yarns, fabrics, apparel and home textiles, where as the denim sector is booming.

    Many mills have booked their export sales of textiles for both the first and second quarters of the current year and are also negotiating for further sales thereafter Large quantities of grey cloth is also being exported where as it would have been better if dyed and finished goods were exported to obtain more value in the foreign markets. Anyhow, the overall textile sector in Pakistan is doing very well.

    Some of the smaller and unorganised units are said to be having difficulty because henceforth the textile industry needs to obtain economies of scale and adopt sophisticated kind of selling in the international market to achieve the desired goals and gains for which there is a large scope.

    According to current assessments it is expected that seedcotton (kapas/phutti) for about 14 million lint-equivalent bales will have arrived at the ginning factories for the current season (July 2004-August 2005) by the middle of this month.

    From this quantity, the domestic mills will have lifted close to 10 million bales of local size, where as the Trading Corporation of Pakistan (TCP) will have lifted about 1.5 million bales from an estimated 2.6 million bales which they have bought.

    The exporters have lifted nearly 500,000 bales from reported sales of about 700,000 bales they have made, where as the ginners still carry about 2 million bales including about 1.1 million bales which they are holding on behalf of the Trading Corporation of Pakistan (TCP).

    Except for the big landlords who are still carrying seedcotton (kapas/phutti) on their own account, most of the seedcotton has reportedly bee disposed by the small farmers leading to rumours in the market that henceforth the Trading Corporation of Pakistan (TCP) may reduce or limit its activity, or even withdraw from the market because the government has already fulfilled its obligation to the small growers.

    Moreover, the government also has taken cognisance of the fact that under the present conditions the Trading Corporation of Pakistan (TCP) will be suffering massive losses for their support to the small-time growers of cotton.

    Thus it has been reported in the market that the Trading Corporation of Pakistan (TCP) is reluctant to enter into new contracts to purchase more cotton from the ginners at present.

    In fact some ginners are complaining that the TCP is very slow in lifting the cotton it has already bought. According to trade talks, the very large funds required to continue cotton purchases is deterring the TCP from further buying in the market.

    Seedcotton (kapas/phutti) prices in Sindh which were previously ranging from Rs 800 to Rs 975 per 40 kgs have fallen to range from Rs 800 to Rs 950 per 40 kgs. In the Punjab, seedcotton prices which were earlier ranging from Rs 800 to Rs 1100 per 40 kgs have now fallen to range from Rs 800 to Rs 1050 per 40 kgs according to the quality.

    The present idea of cotton crop output in Pakistan for the current season (2004-2005) is now being estimated to range from 14.5 million to 15 million bales on an ex-gin basis. However, some optimists are even hoping for a still larger crop.

    In ready sales reported till Thursday afternoon, 1000 bales from upper Sindh (K-68) were sold at Rs 2100 per maund (37 32 kgs), while 400 bales from Kahror Pucca in Punjab sold at Rs 2050 per maund and 200 bales from Rahimyar Knan sold at Rs 2075 per maund.

    Larger consumption and thus increasing prospects of import of cotton by China and some other countries and fears that sowing will be deceased during the next season (2005-2006) in some parts of the world have been responsible for a stabler price pattern on the New York futures market in recent weeks. If there is any setback in next year’s crop in any of the major cotton producing areas, then lint values could move up to higher levels.

    On last Wednesday, the frontal months on the New York futures market made marginal gains. The March 2005 delivery settled at US cents 46 59 per pound (up by 39 points), the May 2005 delivery ended the session at US cents 47.46 per pound (up by 22 points), while the July 2005 delivery closed for the day at US cents 48.60 per pound (up by 10 points). The market appeared to be in mood of consolidations.

    Courtesy: Business Recorder

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