Cotton: Local cotton prices again remained upbeat in the outgoing week as supply pressures continued to drive the bullish sentiment while mills stocked up on the depleting stock of fine cotton. The official spot rate thus surged by Rs50 over the week, climbing to Rs6,800 on Friday.
Export of value added Pakistani textiles at the close of 7MFY13 has surged by eight percent, reaching $7.5 billion, as the local textile industry's dynamics went through the roof. During the first half of FY13, profitability of textile units climbed to Rs13.2 billion as compared to Rs1.1 billion during the same period on consistent regional demand- predominantly of low value added yarn.
Support to the country's textile sector also came in the form of the Rupee's depreciation against the greenback, lower finance costs and better gas prospects. Improved sector dynamics thus are slated to keep the prices firm in the medium term as mill demand continues to mount.
Likewise, strong demand also continues to dominate the international market as New York Futures surge to the highest in a year. Supported by US sales- which rose by 25 percent over the last week- prices have breached the 90 cent mark for the first time since April 2012.
An erosion of domestic ending stocks outside of China combined government support price policies in countries such as India are likely to continue supporting global prices in the medium-term; however with 46 percent of global ending stock remaining in Beijing's possession, Chinese policies remain the one factor which may act as the wild card for cotton prices.
Rice prices in the region remain tight as usual as the prices for the benchmark Irri-6 5 percent variety show some recovery this week, climbing up to $435/ton as a flurry of orders from the Chinese markets continues.
Prices for long grain white rice have predominantly stagnated over the last month or so, witnessing much competition from Indian quarters as the bumper stocks in the possession of Indian authorities put pressures on competitor's prices.
This pressure on prices is slated to continue as the global paddy production is now foreseen to exceed consumption by 11 million tons, hence supplies are estimated to be added to inventories, which would boost global rice carryover stocks to 171 million tons in 2013.
With the largest increase expected for China, the global stock-to-use ratio is hence estimated to rise from 33.6 percent in 2012 to 35.2 percent in 2013. According to FAO's estimates, amongst the five leading exporters, Thailand and Vietnam are projected to end the season with larger inventories, while India, Pakistan and the United States may face a contraction.
Amid a slow domestic demand, the wholesale prices of sweetener took a dip yet again hovering around Rs4,800-4,900 per quintal as against the price of Rs4,960-5,100 per quintal observed last week. With a fragile demand at home, exports appeared to be a lucrative opportunity for the millers to mint money and pay off their outstanding dues with the banks and growers.
Accordingly, international trading activity remained buoyant this week with price tag of $475 per ton FOB (Normal medium grain sugar) and $515-520 per ton FOB (Fine sugar). Besides export transactions taking place at full swing with Saudi Arabia, Somalia, Sweden, Djibouti, Malaysia, the private traders of India also imported 1,455 tons sugar worth Rs 44.2 million from Pakistan in the first three months of CY13, owing to drought which might reduce the area under can cultivation and push the prices up.
According to Najib Balagamwala, Chairman, SeaTrade Group, export orders of 400,000 tons have been booked by the private millers with a target of 900,000 tons, which are likely to be met by October, this year.
Reportedly, owing to a bumper crop of 60 million tons harvested this year, millers obtained 69 percent greater funding facilities to finance their crushing operations. Moreover, the banks pledged 2.807 million tons, up from 1.895 million tons. The outstanding sugar financing stood at Rs130 billion in February this year against Rs83.3 billion in February last year.
Looking at the international supply situation, world sugar production is now forecasted at 181.0 million tons, as against previous year production which stood at 177.1 million tons. Region-wise, the EU is expected to produce 17.2 million tons, China 15.1 million tons, Russia 5.3 million tons, India 24.5 million tons, Brazil 40.3 million tons, and Pakistan 5.3 million tons, while in Ukraine it is revised down to 2.4 million tons.
USDA is mulling over purchasing 400,000 tons of sugar from its millers to avert the risk of default of its millers and to buoy the sinking sugar prices.
On the prices front, May 2013, No 11 raw sugar contract at ICE settled at 18.89 cents/lb, while No 5 May 2013 white sugar contract at LIFFE was traded at $539.40/ton as of March 16, 2013.
The wholesale prices of wheat stayed between Rs3,300 - 3,400 per quintal while flour prices hanged around Rs38-48, depending on the category. According to market sources, the government still maintains three million tons of wheat from last year's harvest which should be released in the market to cap the heightening prices.
However, government officials point out that the wheat released is more than enough to keep the mills running and to feed the country until new harvest. According to them, millers are smuggling wheat on the sly and attribute the shortage to feeble supplies from the government or give the excuse of burglary. Recently, 27,500 bags of Rs100 kg each are missing from Khairpur District.
Industry insiders told BR Research that wheat is in high demand internationally; however the high prices of Pakistani wheat render it unattractive to the potential buyers. In the past few months, Pakistan has exported only 10,000 tons of wheat due to unattractive price of $340 per ton, while majority of market is captured by India whose prices hover at $310-315 per ton.
This year, wheat has been cultivated over an area of 8.6 million hectares and the recent rains have increased the probability of better output. Thus, the country will have abundant wheat available to meet the domestic demand leaving sufficient room for exports. However, with the increased support prices for the upcoming crop, the prices will surge further depriving Pakistan of the foreign exchange income they could earn, amid wheat shortage internationally.
According to IGC, World wheat production is forecasted to boost by about four percent in the 2013-14 due to favourable weather conditions in the major wheat producing countries. International wheat prices are expected to gain stability as Australia, Canada and Pakistan are expected to produce excellent crops.
However, most of the increase will be absorbed by rising demand leaving the ending stocks at 176 million tons, just two million tons above the previous season's stocks.
On the prices front; US hard red wheat for Gulf delivery settled on $325 per ton, on March 09, 2013, as against $295 per ton, a year ago. While the EU France grade-1 wheat clocks in at $314 per ton, as against $293 per ton, last year.