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ANALYSIS: panicky sellers surrender to cotton buyers
KARACHI (July 26 2004): With the completion of sowings in the
late sowing areas, cotton sowing in 2004-05 season has come to
an end. Cotton harvesting in early sowing areas of Lower Sindh
and some areas of central Punjab in Sahiwal, Chichawatni and
Mian Chunnu has already commenced.
Sindh ginners have not yet started their operation in new crop
but some ginners in Sahiwal, Chichawatni and Chishtian areas
of Punjab have commenced ginning operation in new cotton crop.
Field reports indicate that a couple of thousand bales from
new crop seed-cotton have already been pressed by Punjab
factories. Seed-cotton from Sindh is being transported to
Punjab for ginning because Sindh has yet to start ginning in
new crop.
The Pakistan Cotton Ginners' Association had decided not to
commence ginning operations in new crop in Sindh and Punjab
before September 1 and October, respectively, to give a
breathing space to those ginners who are still holding unsold
stocks from 2003-04 crop.
Crop is developing well under conducive weather conditions and
it is hoped that friendly weather forecast would help in
harvesting a bumper crop of around 11.5 million 170-kg bales
in 2004-05 season.
Quality of lint cotton ginned and pressed from new crop
seed-cotton appears to be of better grade and quality. Monsoon
is likely to enter Pakistan in a couple of days as per Met
Office forecast.
Monsoons in South Asian countries like India, Bangladesh,
Japan, Nepal and China have played rough and rain waters have
flooded causing heavy loss to property, crop and lives. We
anticipate that while entering Pakistan, the Monsoon would
lose some force.
However, there are crucial months ahead of harvesting stage
and we should be ready to meet any eventuality.
The Punjab government is reported to have prepared a scheme
which would provide crop insurance to growers to cover their
risk of loss or damage to crops. Let us see how far this
scheme works for the benefit of the growers.
Local cotton prices remained under pressure and during the
last week Spot Rate was slashed down by Rs 100 to Rs 2,500 per
maund ex-gin.
The ginners and exporters holding unsold cotton stocks were
greatly perturbed on very poor buying interest. New crop
cotton was selling around Rs 2,450-2,500 per maund and running
crop lint of prime stations was quoted at the same rates.
Lower grade cotton was selling around Rs 2,200-2,400 per maund
ex-gin.
Foreign inquiries are almost non-existent. Other reports
indicate that bankers appear quite worried about recovery of
funds advanced to cotton / textile companies against pledge of
cotton / yarn as the valuation of pledged cotton and textile
goods stocks may be far below their advances in view of 20-25
percent fall in cotton and yarn prices.
The bankers are understood to be working on some plans /
methods including taking over of the stocks to safeguard their
interests. If 2.5 million bales of raw cotton are taken as
pledged stocks, the loss in valuation may be over Rs 8,000
million.
This season (2003-2004), the ginners, exporters and spinners
have generally lost heavily and many in tens of millions.
Perhaps only growers made money as they were able to get best
price of their seed-cotton--up to Rs 1,600 per 40 kg ex-gin.
Still the ginners may be holding unsold stock of some 350,000
bales and picking of new crop cotton has already commenced.
Stocks of yarn are piling up and there is very little buying.
Prices have gone down considerably and foreign buyers are
indicating to reduce yarn prices to compensate their loss.
The season: cotton prices rocketed high--around to 84
cents--and nose-dived to 46 cents 46 at the close of the
season. Now, new season is taking a start from low level of
prices and is likely to finish at high level. China factor
played a very important and significant role in cotton
marketing this season.
New York Future Market resisted further fall in values during
last week. October contract lost 85 c/pts, December 76 c/pts
76 and March 91 C/pts to close at 46.45, 46.62 and 48.39 cents
respectively.
Running cotton season (2003-04) will be closing on July 31 and
new cotton season (2004-05) will commence from August 1. As
per US rules, subsidy will be allowed only on such cotton
which will be shipped on or before July 31, 2004.
The international merchants holding unsold stocks are dumping
it in other countries for earning export subsidy so it does
not mean that all cotton shipped before August 1 is actually
sold. US may attain the export target of 13.8 million bales
this season.
In view of conducive weather conditions in almost all
prominent cotton producing countries, prospects for a record
high world crop have brightened which is presently estimated
around 104.73 million 480-lb bales in 2004-05 season--10.84
million bales more than the estimated production of 2003-04
season and 4.57 million bales more than its consumption in
2004-05 season.
China is understood to have prepared a plan for providing
subsidy to its cotton and textile industry to make it stay
against international price pressure. As the implementation of
WTO regime is drawing closer, most of the textile importing
and exporting countries are afraid of big competition from
China.
There are silent protests and lobbying by some countries in
favour of postponement of WTO regime. It is certain that
marketing practices / policies would undergo drastic changes
on implementation of WTO regime.
TABLE NO 1
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USA & World Cotton Figures
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USA million 480-lb bales World
2004-2005 2003-2004 2004-2005 2003-2004
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Beginning Stocks 3.60 5.38 32.93 36.65
Production 18.00 18.26 104.73 93.89
Local consumption 5.80 6.30 100.16 98.39
Exports 11.30 13.80 - -
Imports 0.04 0.05 - -
Ending Stocks 4.50 3.60 37.79 32.93
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Source: USDA, July-2004.
TABLE NO 2
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Million 480-lb Bales
Production Consumption
2004-2005 2003-2004 2004-2005 2003-2004
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China 30.00 22.30 34.20 32.20
India 12.50 13.20 13.60 13.30
Pakistan 8.75 7.75 9.90 9.60
Central Asia 7.40 6.84 1.95 1.89
West Africa 4.42 4.43 0.20 0.20
Turkey 4.25 4.10 6.10 6.00
Australia 2.40 1.50 0.07 0.08
Brazil 6.50 5.80 3.90 3.75
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Curtesy: Business Recorder
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