ANALYSIS: World cotton and textile prices drift on bumper crop
KARACHI (July 12 2004): 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
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
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
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
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
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