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Analysis: cotton crisis further deepens for
ginners
KARACHI (April 05 2004): The latest cotton figures
released by Pakistan Cotton Ginners' Association (PCGA)
have confirmed total arrivals of 2003-04 cotton
crop to exceed last year's figures, as up to April
1, 2004, total seed-cotton equivalent of 9.760
million bales had been received at ginneries--up
0.74 percent from last year's same period.
Punjab got 7.626 million bales (2.27 percent up)
and Sindh 2.123 million bales (down 4.39 percent).
The stock of unsold cotton has been mentioned as
1.204 million bales. Further arrivals are in the
last leg.
Total booking of foreign cotton is estimated to
have crossed the level of 1.6 million local bales,
of which about 0.9 million bales are expected to
have reached the mills site.
As reported earlier, total mill consumption is
estimated around 12.5 -13.0 million bales, against
which 1.0 million bales of waste cotton are
re-used in the millls, specially for manufacturing
coarse count yarn on open-end spinning.
The balance requirement of raw cotton comes to
11.5 - 12.0 million bales which would be met by
local production of 10 million bales and through
cotton imports of 1.5 to 2.0 million local bales.
The government has fixed cotton production target
of 10.7 million bales for 2004-05 season.
Unfortunately, our statistics are not considered
quite reliable and credible, so sometimes guess
and estimates are considered.
Although the government of Pakistan and this
analyst stuck to their production estimates of 9.5
to 10 million bales for 2003-04 season throughout
the season but some prominent ginner leaders were
very much reluctant to accept the crop of 10.0
million bales.
Some of them insisted that production might be as
low as 8.0 million bales. In October, 2003,
reports of widespread damage to cotton crop by
rains and pests, specially bol worm, panicked all
cotton stakeholder, resulting in sharp rise in the
prices of seed-cotton to Rs 1,600 per 40 kg
ex-gin.
The growers dumped all available seed-cotton at
ginning factories at fixed rates and lint prices
jumped to the level of Rs 3,600 per 37.324 kg
ex-gin and the ginners were expecting even Rs
4,000.
The spinners, misled by reports of heavy damage to
cotton crop, rushed to book foreign cotton and a
large amount of cotton was committed at high
prices, around 70 cents per lb. By that time, news
of heavy damage to Chinese cotton crop had also
surfaced and New York futures prices touched the
season's highest on October 29, 2003 at 82.75
cents a pound for December contract, 84.92 cents
for March, and 84.93 cents for May contract.
China and other countries like Mexico, Turkey,
Indonesia and Korea Republic also made substantial
purchases, specially from USA.
Actually, New York cotton futures skyrocketed
unduly, and under reaction they tumbled down to
60.30 cents per lb on April 1, 2004 (May
contract).
In the local market, the lint prices have
drastically been reduced from Rs 3,600 per maund
to Rs 2,850 for better grade cotton, while lowest
grade and low mic cotton is selling around Rs
2,100-Rs 2,200 per maund and some of the exporters
and spinners are reported to have bought
substantial quantity of low grade cotton.
KCA spot rate on close of the week was fixed at Rs
2,900 per maund ex-gin, down Rs 50 from last week.
Field reports indicate that some of
spinner/importers are settling their high price
bargains by paying agreed difference to the
sellers-exporters.
In local market, when such situation of abnormal
difference in bargain price is found, either the
buyer or the seller flatly disregard the sale.
Some ginners and exporters are holding large
stocks and are much worried about the situation.
Most of the unsold cotton stocks are lying in
Sukkur and Ghotki districts of Upper Sindh and
Rahimyar Khan and Bahawalpur districts of southern
Punjab.
THERE ARE MANY REASONS FOR HOLDING UNSOLD
COTTON FOR A LONGER TIME VIZ:
1) these areas are late-sown areas and crops are
harvested late.
2) these areas produce better quality cotton.
3) the ginners are financially enough strong to
hold cotton for a longer period.
Although Rahimyar Khan district was seriously
damaged by pest attack and damage was estimated
around 30-40 percent but cotton production figures
speak otherwise.
Actually, Rahim Yar Khan district was short in
crop but cotton from other areas like Sanghar,
Nawabshah in Sindh, Vehari, Burewala, Toba Tek
Singh, Chistian, Haroonabad in Punjab where
seed-cotton prices were comparatively low, was
brought to Rahimyarkhan to feed their ginneries.
The result was that quality deteriorated as cotton
of inferior quality was mixed up with better local
cotton.
Presently, the worst sufferers are the ginnners of
Upper Sindh and southern Punjab, specially of
Rahimyar Khan and Bahawalpur/Bahawalnagar
districts.
Generally, quality of lint cotton has been found
low because of poor ginning and mixing of inferior
grade cotton. If there had been grading system at
ginning stage, lint quality would have been much
better and uniform.
Now, the ginners who are in soup and are asking
for government help to bail out them of this
situation.
On about two/three months old cotton stocks, the
ginners are losing some Rs 2,000 a bale.
Many of the 'brave' ginners/exporters are holding
larger unsold stocks of more than 20,000 to 25,000
bales.
The losses are certainly beyond the financial
strength of the ginners. If the same market
situation continues for a month or so, losses to
ginners may run into millions of rupees--total
losses on 1.2 million bales, at an average rate of
Rs 2,000 a bale, works out to Rs 2,400 million.
The growers who owe money from ginners, the
general debtors, the banks who have advanced funds
against stocks (which may be under-valued) would
actually share the loss of the ginners.
In general, the brunt of the loss would be passed
on to common man, directly or indirectly.
ON INDEPENDENT AND IMPARTIAL ANALYSIS OF THE
SITUATION, FOLLOWING REASONS WOULD BE FOUND:
1) The poor and obsolete current marketing system
exposes all cotton players to financial risks and
encourages negative practices of defaults in
contracts;
2) In the absence of written contract, the buyer
and seller both are tempted to dishonour the
contract when prices do nor favour one or the
other;
3) the concerned Associations of cotton
stake-holders and the Government monitoring
agencies play the role of silent spectators and
are least bothered;
4) the banks advancing funds do no have technical
/ professional people to guide and monitor
advances against cotton.
The system of crop estimation and its monitoring
should be streamlined on scientific methods to
make it reliable and more accurate.
A neutral agency like State Bank of Pakistan
should collect cotton statistics every week
through the banks advancing funds to ginners.
The present marketing has its large contribution
in the loss of the ginners but neither the
Pakistan Cotton Ginners Associations nor the
Karachi Cotton Association or All Pakistan Textile
Mills Association or the Government departments /
institutions /organisations take any interest for
removing defects of this marketing system and
modernising it to make it a perfectly all right
marketing system.
International reports say that yarn market is
still depressed but a press report from Faisalabad
indicates that cotton yarn prices have improved by
20-25 percent in the last six months in the local
market which have made our (textile) exports
uncompetitive in the world market.
There were reports of weaving sector of
non-availability of cotton yarn for local weaving
industry as more cotton yarn has been exported.
The spinners are complaining of poor price of
cotton yarn and very slow off-take. World wide
slump is reported in cotton yarn which has
negatively impacted cotton prices.
New York cotton futures appear to have lost their
direction. One week the market goes up and the
other week it comes down.
As a matter of fact, the speculators have almost
squared up their position in running cotton
contract and have not made their mind to either to
go bullish or bearish in new crop contracts like
October, December, and March, 2005.
The international merchants are reportedly holding
cotton of higher rate and are caught in bearish
sentiment.
Even in international cotton trading there are
reports of settlements of some of the big bargains
by some countries.
Some foreign reports indicate that China may also
be considering settlement of some of its bargains
in view of higher loss in import of cotton and its
use. If these reports materialise then cotton
prices may lose ground further.
USA has so far sold in export 12.046 million
480-lb bales and of these shipped 7.544 million
bales up to March 25, 2004. Prominent buyers of US
cotton were China 4.537 million bales, Mexico
1.614 million bales, Turkey 1,180 million,
Indonesia 0.775 million, Korea Republic 0.448
million, Canada 0.413 million, Pakistan 0.387
million (including 83,400 bales of US Pima),
Thailand 0.351 million, Japan 0.341 million and
Brazil 0.296 million 480-lb vales.
These top ten countries have bought 10.342 million
bales equal to 90 percent.
Some foreign reports say that USDA has announced
cotton planting target of 14.4 million acres in
2004-05 season which is about 7 percent higher
than area sown in 2003-04 and may produce about
19.2 million bales next season.
US would plant Pima cotton on 226.600 acres to
produce about 575,000 bales ie about 27 percent
more than 2003-04 season.
The high US sowing intentions have caused bearish
effect on cotton market. As a matter of fact,
similar reports would start pouring in.
China is considering to produce 28.9 million bales
in 2004-05 against 22.5 million bales produced
this season.
Thus increase in production would be equal to
28.44 percent more than 2003-04 season. Cotton
consumption in China is expected around 33.5
million 480-lb bales, 5 percent up from 2003-04
season.
This would be 34 percent of the world consumption.
Global cotton production next season (2004-05) is
estimated around 102 million 480-lb bales, up 2
percent from 2003-04 season while cotton
consumption would be around 97.8 million bales, up
1 percent from 2003-04 season.
Next season, world exports are expected to decline
to 29.4 million bales. US exports are forecast at
11.48 million bales in 2004-05 season while in
2003-04 it was 13.775 million bales equal to
around 42 percent of total world exports--highest
since 1960-61.
In late 1930s, US export share in the world market
was perhaps more than 60 percent. China's gap
between its production and consumption in 2004-05
will be around 4.6 million bales so its imports
would decrease from 7.5 million bales in 2003-04
to 6.20 million bales in 2004-05 season.
Australia appear to have come out of drought / dry
season and in 2004 Australia production is
estimated 1.7 million bales, up 30.77 percent from
2003 season.
The 2004-05 season will have more cotton
production than its consumption by 4.2 million
bales (Production 102 - Consumption 97.8 million
bales) whereas in 2003-04, world production about
5 million bales less than its consumption.
Thus if we compare the cotton balance sheet of
2003-04 and 2004-05 seasons, we come to a positive
difference of 9.2 million bale in favour of
2004-05 season.
Courtesy Business Recorder |
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Pakissan.com; Advisory Point
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