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ANALYSIS: some positive developments
improve cotton prices
S. A. AZIZ SHAH
KARACHI (August 10 2004): The much-awaited and widespread
rains last week in cotton areas of Sindh and Punjab cotton
belts have benefited the cotton crop. Since cotton sowing was
not done at one time but at different times due to shortage of
irrigation water, the crop throughout the country is at
different stages of growth. This phenomenon reduces the risk
of widespread damage to cotton crop.
However, rains may delay the opening of bolls in some early
sown areas but would generally be quite beneficial for the
development of plants.
Presently, the condition of crop is 'good' to 'very good', and
harvesting of a bumper crop of 11.5 million 170-kg bales
appears quite realistic but the crop has to pass through a
crucial period of about eight weeks till the first week of
October. It is heartening to note that growers appear quite
alert to face any eventuality which may cause damage to cotton
crop.
If the rain continues longer it would slow down picking
operation and cotton movement to markets/ginneries for a week
or so. About a dozen of factories in lower Sindh and a couple
of dozens in Punjab have resumed operation in new cotton crop
and others are in queue.
The ginners appear quite reserved and cautious in marketing of
seed-cotton and lint cotton as they say they suffered heavy
financial losses in 2003-04 season as they are reported to be
carrying unsold cotton stocks of about 300,000 bales of last
season.
One press report said that Finance Minister Shaukat Aziz has
assured the PCGA delegation that entire unsold cotton stocks
from old crop with the ginners would be purchased by Trading
Corporation of Pakistan. But trade circles did not confirm it.
However, the government is understood to have issued
instructions to Trading Corporation of Pakistan (TCP) to
purchase 0.1 million bales of 2004-05 crop to stabilise
falling seed-cotton prices above the Minimum Support Price
level of Rs 925 per 40 kg ex-gin.
Reportedly, this purchase order has been given to TCP on the
condition that TCP would not make any loss.
Since cotton crop has only just started moving and the
spinners are already lifting what is produced, the government
step showing intention to intervene in cotton market as third
buyers appears quite premature.
One TV report said that TCP would be setting up its
procurement centres in Mirpurkhas and Nawabshah by August 15,
and other centres in Upper Sindh and Punjab would be set up by
September 15.
Some people think this decision may have some political
motives as elections will be held in Mirpurkhas/Tharparker
constituency on August 18 and Shaukat Aziz is contesting this
election.
The other day reportedly Sindh Agriculture Minister said that
transportation of Sindh seed-cotton to Punjab would be checked
to make it available to Sindh ginneries.
As a matter of fact, this step would go against the interests
of cotton growers. When there are no restrictions on movement
of raw cotton within the country then why on seed-cotton?
According to the document 'Textile Vision 2005' prepared in
2000, Pakistan's cotton production is planned to be increased
from 10.0 million bales in 2000 to 15.2 million bales in 2005
but the government has fixed production target at 10.7 million
bales in 2004-05.
In the same document, for strengthening of cotton marketing
system, three measures were recommended: (1) Opening of Cotton
Hedge Market; (2) Implementation of Cotton Standards; and (3)
Setting up of commercial warehousing.
For improving quality of lint cotton three measures were
recommended: 1) Improving staple length from 26 millimetres to
29 millimetres; 2) Reduction in contamination/trash
percentage; and 3) Improving Ginning technology.
Now, 2004-05 season has already commenced but we do not appear
to have moved an inch either towards increasing production to
15.2 million bales or towards improving the quality of lint
cotton.
The WTO regime, ensuring implementation of free trade among
the countries, would be enforced from January 1, 2005. This
attaches very high importance to adoption/implementation of
international standards in all agricultural as well as
industrial commodities.
The government appears reluctant/hesitant in implementing
Cotton Standards at ginning stage although the whole scheme is
ready and the President of Pakistan has already issued a
decree in this regard in November 2002.
Our cotton and textile statistics lack reliability; our
marketing system has collapsed; and performance in cotton
productivity and quality control is miserably poor. Then how
our textile sector would be able to compete with other
countries?
On the reports of government intervention in cotton market,
new crop cotton prices have improved by Rs 75 to Rs 100 per
maund from Rs 2,200/2,250 to Rs 2,300/2,350. And, old crop
cotton has also gained some strength. But this sentiment may
lose force after by-election of National Assembly seat in
Tharparkar (Lower Sindh) on August 18.
Unsatisfactory domestic law and order/security position,
increasing inflation rate, reducing home-remittances/forex
reserves, high level of oil prices - around US $44 per barrel
- and slack yarn market are the factors likely to cast bearish
effect on the markets of cotton, yarn and other textile goods,
at least in the next couple of months.
Trade circles expect world crude oil prices to stabilise
around $40 per barrel. The high oil prices would adversely
affect the economies of oil deficient countries. High oil
prices would increase cost of production and the real economy
would slow down.
The good news is that European Union has decided to withdraw
anti-dumping duty on import of bed linen from Pakistan.
New York future cotton market showed some improvement from
previous week. October contract finished at 44.90 cents, and
December at 45.60 cents appreciating by 107 C/pts and 120
C/pts respectively.
In the week ended on July 29, China rejected 61,100 bales and
Bangladesh 2,800 bales. US total export sales in 2003-04
season were as under:
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Export Sales Shipments
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Upland 13,976,400 12,633,200
Pima 538,100 520,900
Totals 14,514,500 13,154,100
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Main buyers of US cotton (in million bales) were: China 4.85;
Mexico 1.97; Turkey 1.54; Indonesia 0.93; Pakistan 0.592
(including 94,000 bales of US Pima); Thailand 0.53; Korea Rep
0.52; Canada 0.46; Taiwan 0.42; Japan 0.31; India 0.28; and
Bangladesh 0.23.
US will issue its first cotton report of 2004-05 crop on
August 12 and only then some clear picture would emerge.
On the last day of the week Cotlook A index was 53.05 and B
index at 51.15 while in China A-index was 71.99 and B Index
64.30 on 6th August 04. Cotton trade is very minutely looking
at the development of cotton crop and even minor change would
be reflected in price.
However, easy factors are dominating the cotton market and
only if some big dent in cotton crop of any prominent cotton
producing country would only change the direction of present
bearish trend.
Courtesy: Business Recorder
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