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World cotton and textile prices drift on bumper crop reports




  • About 80 percent of cotton sowing is reported to have been completed and only some late sowing areas, or where supply of irrigation water is still awaited, remain. It is hoped that sowing would be completed by the end of this month.
    Interestingly, in some of the areas of Upper Sindh or eastern or southern parts of Punjab cotton is yet to be sown, while in other areas of Lower Sindh harvesting of cotton has commenced. Now, one can find cotton crop at all stages, from sowing to harvesting.
    The sowing operation has been extended to about four months due to shortage of irrigation water supply, and so would be development period of the crop. Lastly, harvesting period is expected to extend to more than six months.
    In view of these changes in periods of cotton growth, its development and harvesting, there may not be rush of arrivals in the months of November and December as happened in previous years. This phenomenon would not let the cotton prices crash or drop drastically.
    The onset of monsoon season about a month earlier would have very beneficial impact on crop development as almost late rains have been causing damage to cotton crop. When I visited some of the areas in Lower Sindh last week, I was pleased to see very healthy and happy plants. In some areas the plants had reached flowering stage.
    The area under cotton crop is estimated to have increased to around 3.2 million hectares in 2004-05 season and, on the basis of quite possible average yield of 610 kg per hectare, Pakistan can harvest a bumper crop of 1.952 million tons, or 8.96 million 480-lb bales, or 11.47 million 375-lb bales.
    Taking our gross consumption of cotton as of 13.0 million bales, the shortfall might be around 1.53 million local bales.
    About 5 percent of cotton waste is reused for manufacturing coarse count yarn through O-end spinning. Thus, the net shortfall of raw cotton would be around 1.03 million local bales.
    At present, the ginners are holding unsold stock of more than 400,000 bales from 2003-04 crop. The spinning mills are reported to have booked substantial amount of foreign cotton for 2004-05 season which may be around 0.5 million bales. If the spinners book cotton further heavily, there may be a glut of cotton in the country which may lead to a crash in local cotton prices.
    Another view of the situation is that anything adverse to cotton production such as inclement weather, heavy rains and pest attack may reduce cotton production estimates. This equally applies to all prominent cotton producing countries such as China, USA, India, Pakistan and CIS.
    In fact, there has been substantial increase in Pakistan’s spinning capacity through installation of more spindles as well as replacement of old ones by new ones with higher speed.
    In the absence of reliable statistics in respect of spinning capacity and weaving capacity, we cannot precisely and correctly compute gross cotton consumption and hence cannot plan cotton imports or exports.
    Local cotton market experienced quite dull sessions last week when cotton prices almost crashed due to heavy fall in New York cotton futures prices and absence of buying interest.
    Cotton sellers (ginners and exporters) holding stocks of unsold cotton became panicky and went on reducing their asking price to Rs 2,600 to Rs 2,700 per maund ex-gin for better grade cotton, and around Rs 2,100 to Rs 2,300 per maund for low grade cotton.
    The trend of cotton prices is quite difficult to predict at the moment as cotton crop has yet to pass through a critical stage. If local cotton production level of plus 11.0 million local bales and world production level of 103 million 480-lb bales are maintained, then lint prices in local market may drop even to the level of Rs 2,000 per maund.
    International merchants, reportedly holding unsold stocks, are in the soup. Commenting on the present cotton situation, one international merchant said that the situation was beyond his comprehension.
    He said that generally the merchants maintained long position in Hedge Cotton Market as well as in Ready Cotton Market and have suffered heavily due to recent drastic fall in cotton prices followed by decrease in prices of textile products including yarn.
    The main reason for this is said to be withdrawal of China from international cotton market and slowdown of Chinese textile manufacturing sector.
    New York Cotton Hedge Market drifted down during last week and new crop October contract settled at 47.85 cents, and December at 48.48 cents per lb at close of the week.
    Continuation of reports of bumper world crop and bearish yarn and textile situation in China may further pressurise cotton market and consequently vales in New York market may scale down to the level of 40 cents per lb.
    Another factor for depressing cotton and textile product prices is the uncertain situation surfacing with the start of new era of free trade market through implementation of World Trade Order from January, 2005.
    The pros and cons of the implementation of WTO regime have only theoretically been discussed but how this system would perform in practice is yet to be seen.
    The concerned countries would have to make drastic and fast changes in their economic and trade policies to keep pace with the post-WTO situation.

    Curtesy: Business Recorder

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