Who would have thought that Pakistans cotton and textile industry would end up in a quagmire this year? Probably very few; only those who were betting that global and local cotton prices would soar, creating a shortage despite a bumper cotton crop earlier this year.
Tracking the rise in global markets, domestic cotton prices have jumped manifolds to hover between Rs6,600~6,800 per maund in recent weeks. It is now seen rising to Rs7,000 per maund in the short-medium term, as only 65,000 bales are left in the stocks.
"Usually, thats just about two days of inventory, but it may last for a week" says Naseem Usman of Karachi Cotton Association, who is optimistic that further price hike would be checked nonetheless.
Though proper supply would start streaming in by mid-July, Usman expects several mills to offload their unused cotton inventory between now and then.
That and the remaining 200,000 bales due from the 950,000-bale contract struck with India (before she imposed the export ban) could have eased immediate supply concerns.
But now that India has banned exports saying that contracts registered for shipment before April 19 need to be revalidated, the fate of 200,000 bales hangs in the balance.
As for the short term, 300,000 bales of cotton ordered from various sources can help meet the demand. But that, of course, is costlier, which takes longer time period to materialize, compared to the Indian option.
Cotton currently ordered from sources including Central Asia, West Africa and the US costs around 95 cents per pound - about 18 percent pricier than 78-80 cents paid for the Indian cotton.
The big question now is, how will cotton economy fare in the season ahead?
Global cotton consumption is seen racing by the Washington-based International Cotton Advisory Committee, on account of improving world economy. Tracking higher demand, output is seen rising too.
Yet the fundamentals are suggesting higher cotton prices, in the wake of low temperatures in Chinas major growing areas that have delayed the completion of cotton planting by 10 to 20 days.
Wooed by this rosy picture, hedge-fund managers and other large speculators in the US have increased their net-long position in cotton by 15 percent from a month earlier, according to foreign media reports.
For local textile players, however, things aren too rosy in the medium-to-long term. After facing a troubling season this year, which otherwise could have been sanguine had it not been for rampant raw exports, prices are seen firmer ahead.
Ordinarily, they could have had shifted towards polyester fibre. But given forecasts of expensive oil, the PSF option is not going to be as economical as before. Still, demand should be ripe for PSF makers between now and July.
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