NALYSIS: larger cotton arrivals, weak New York advice depress prices

KARACHI (September 06 2004): Countdown of crucial period for cotton has already started. The other day Punjab Agriculture Department was cautioning cotton growers through e-media to remain vigilant on the possibility of boll-worm attack in cotton belts of Punjab in view of the presence of some eggs of boll-worms on cotton plants in some areas including Rahimyarkhan and Okara districts.
The telecast was mentioning different measures to be taken by cotton growers in correct diagnosis of disease/pest attack, selection of right medicines, spray system and safety measures.
The September month described in cotton trade circles as Situmger (Devastating) month for cotton crop is crucial with regard to possibility of damage to cotton crop by pest attack specially boll-worm.
All cotton growers, field workers of all Provincial Agriculture Extension Departments, pesticide sellers, agri-scientists and other support workers should remain at high alert to fight any possible attack of pest specially boll-worm on war footings.
In the crucial period the slogan should be ‘save cotton crop to boost economy and strengthen Pakistan.’ The good news for cotton crop is that there may be either little or no more rainfalls in this season.
Hopefully, we may be able to harvest a bumper cotton crop of 11.5 – 12.0 million local bales. Shaikh Shahabuddin, a Sadikabad based grower operating his ginning factory in Rajanpur (Punjab) said that he was seeing a record high crop of 13.0 million bales this season. God save our King Crop.
He said that the hope for a record high crop has synchronisation with the coming up of an able and well-renowned economist Shaukat Aziz as Prime Minister of Pakistan. Perhaps appointment of Shaukat Aziz as Prime Minister of Pakistan may herald a record high crop this season.
Harvesting of cotton is extending to other areas in Lower Sindh and Punjab resulting increase in arrivals of seed-cotton in markets and ginneries. Pakistan Cotton Ginners’ Association (PCGA) released its first of the season’s cotton statistics report on the September 4, 2004.
According to this report arrivals of seed-cotton up to September 1, 2004 was equivalent to 406,637 local bales (197,108 bales in Sindh and 209,629 bales in Punjab) against 189,530 bales (121,812 bales in Sindh and 67,718 bales in Punjab) same time last year.
The increase works out to 114.55 percent over last year. This does not mean that this season crop would be double of the last season’s crop. Some early sowing seeds have been planted in Punjab which has doubled the arrivals.
Interestingly, local spinning mills lifted 301,451 bales out of total 318,920 pressed bales – about 94.5 percent. Exporters also opened their account by purchasing 2,800 bales.
Some of the local mills appear short-stocked and need to buy cotton while others are adding to their inventory. The number of factories in operation this season was 194 (66 in Sindh and 128 in Punjab) against 154 factories (107 in Sindh and 47 in Punjab) same time last year.
This means Punjab is endeavouring to bring its cotton production in the market quite earlier even earlier than Lower Sindh crop to get benefit of higher prices in coming years.
Also textile mills are quite active in lifting cotton bales. Quality of cotton is reported to be far better than last season and the prices are viable.
Lint cotton prices in the local market were directly influenced by New York Future market values and prices moved to Rs 2,450 – 2,500 per maund of 37.324 Kg ex-gin.
However, prices receded to around Rs 2, 300 – 2,350 on the last day of the week. As the prices move up, buyers lose interest and prefer to stay on sidelines. Reportedly, some maiden export sales of raw cotton have been made at the level of Rs 2, 350/2,400 per maund ex-gin.
The Government of Pakistan had withdrawn levy of 15 percent sales tax on purchase of raw cotton from ginneries in the budget and last week it also withdrew 15 percent sales tax on imported cotton. Now, there is no either sales tax or any other Tax/duty on purchase of raw cotton either local or imported cotton.
This would benefit the spinning industry. Ali Mohammed, cotton waste cotton merchant based at Karachi said that it was a high degree of anomaly that import of waste cotton was subjected to 25 percent import duty and 15 percent sales tax. He strongly demanded that like raw cotton, import of cotton waste should be made free.
He further said that consumption of waste cotton was increasing in Pakistan so duty-free import of waste cotton should be allowed.
About 400 Open End mills had been closed down in USA being incompetitive and waste cotton was surplus there. It is also quite cheaper in USA, Brazil and CIS countries and can be easily imported, Ali Mohammed said.
As Pakistan is exporting towels, dusters and other rough items so free-import of waste-cotton is in the best interest of our economy. In another meeting last week, commenting on quality of Pakistan raw cotton, Ahmed Musa of Quality Textile Mills said that Pakistan cotton was the best one among different corresponding growths if produced after proper grading and free from any contamination.
Replying to a question on low export price of Pakistan yarn, he said that poor cotton grade and poor knowledge of export marketing techniques are the reasons. He strongly stressed on better quality of raw cotton and yarn for staying competitive in world market.
He favoured opening of exchange for future trading of yarn in Pakistan as this would help local spinners to compete in world market. Ahmed Musa has good knowledge of global marketing of textiles. He was very hopeful of better future for Pakistan textiles in world markets in WTO regime.
New York Cotton Future Market experienced a turbulent trading sessions last week when values touched limits (Two up and one down) in five working days of the week.
Lastly, retiring contract October 4 closed at 51.00 and December 4 at 51.58 after losing Cents 3.10 and 3.14 respectively. Practically, Fund speculators are playing and trade is watching.
The fear of possible damage to cotton crop due to hurricane in US was instrumental is wide fluctuations in prices. US crop still reported intact around 20 million 480-lb bales with lower consumption around 5.5 million bales this season.
As the WTO regime is approaching fast, unrest among textile manufacturing companies of US and European Union countries is increasing on fear of heavy and cheap exports of textile and garments from China to these countries. As such, these countries are taking necessary steps for safeguarding their local textile industries.
Reportedly 90 textile organisations from 49 countries around the world have recently called upon their political leaders and WTO officials to either extend the current Quota Regime or devise new protection systems which can crack down on cheap Chinese textiles or face economic, political and social unrest around the world.
On implementation of WTO regime from the year 2005, these countries fear loss of some 30 million jobs. Sri Lanka and Bangladesh countries would be most affected by the cheap Chinese textile exports.
In 2003, European Union imported textiles and garments worth 66 billions dollar which would grow substantially after abolition of Quota Regime after the year 2004.
US textile companies are making out cases against China mentioning Chinese irregularities in foreign trade with USA which would be submitted to US International Trade Commissioner demanding some sort of restrictions on Chinese exports of textiles and garments to USA.
These measures are being initiated to safeguard the interests of the US textile industry post Quota Regime in fear of complete closure.
India’s cotton production this season is now placed in the range of 17.5 and 18.0 million 375-lb bales and its domestic cotton consumption is estimated around 30.0 million local bales by the year 2010 while in 2004-2005 it is estimated around 18.0 – 18.5 million bales.
Reports from China indicate a bumper crop around 30.0 million of 480-lb bales despite minor setbacks. However, local economic and textile conditions indicate some difficulties in achieving domestic cotton consumption target of 34.0 million bales.
The Chinese Government has decided to purchase lint cotton from growers to keep up lint prices and to build up a reasonable reserve of cotton stocks to meet any eventuality in coming seasons.
Australia is producing 2.41 million 500-lb bales in 2005. Some years ago Australia had produced 3.5 million bales, which were reduced to 1.2 million bales due to drought conditions and again it is recovering its production. Global production this year is expected 106.75 million 480-lb bales against world cotton consumption around 99.0 million bales.
As the crucial period comes to end by the close of September, possibilities of damage to crop would be minimised and a more reliable production estimates would emerge.
Then cotton prices would be under pressure and lose ground to below the level of US Cents 40.00/ln or even 35., the trade circles estimate.

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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