The "ides of March" proved particularly destructive for cotton buyers this year as prices of cotton in the local market shot up to Rs13,000 per maund. The extent of losses suffered by those who stuffed stocks at that level is only becoming apparent now that prices have dropped to roughly half that rate. The spot rate at Karachi Cotton Exchange has tumbled 19 percent to Rs6800 per maund in the first 11 days of July alone and market participants are certain that the bottom of this drop lies at significantly lower levels. Historical trends show that cotton rates tend to stagnate between May and July as new stocks arrive from the fields and market participants receive a fresh dose of reality to subdue the intoxication of speculation and rumours. However, the movement of prices over the past 18 months displays wild gyrations, not witnessed in recent times. Stakeholders assert that this anomaly is a manifestation of speculators moving into commodity markets after other avenues of investment such as stocks and bonds lost their lustre in international markets. "Even after the impact of the floods, supply was only stunted by less than 10 percent in the local market" highlighted director Alfaz Enterprise Amin Sakhia. Similarly, global demand stood at about 124 million bales, exceeding supply by just two million bales. Regardless of the reason behind the gold rush at cotton markets, the ensuing panic spurred so much buying that local mills are still holding about 1.6 million bales of stocks from the previous harvest. This years harvest is expected to reach about 15 million bales, matching the countrys total demand for the commodity. Brokers from Punjab assert the harvest could rake up as many as 10 million bales from the province while Sindh is also set to churn out 4.5 million bales. Meanwhile, Indian cotton exporters that had thrice backed out of deals with Pakistani buyers at rates as high as Rs12000 per maund back in March-April, are now willing to export 20,000 bales of their high-quality Shankar-6 variety at less than Rs7000 per maund. Even the spectre of rains and flooding seems to have been blunted for now. The much-feared cotton leaf curl virus (CLCV) that had affected as much as a quarter of total production last year, has only impacted about two percent of the crop this year, according to cotton brokers. Moreover, "light rain will actually help the crop that is still in the fields" cotton broker Shakeel Khilji told BR Research. Typically, domestic prices follow international rates closely and demand on the global front appears cool, at best. "Data from the west like US employment figures and European consumer buying indices are showing stagnating growth" commented Sakhia. India had allowed exports of 5.5 million bales back in November, but their sales were affected by legal hurdles and shipping delays. Now, the Indian government has issued export licenses for an additional 170,000 tons of cotton, along with a deadline of September 15. Prospective exporters from across the border will face fines of up to 400 percent of the value of their shipment if they are not able to sell their holdings by this date. Consequently, market participants feel that this quantity will quickly arrive in international markets, further dampening global cotton prices. Lastly and perhaps most importantly, local prices are still significantly higher than global prices, despite the ample availability of old stocks and the new crop. So it is little wonder that the textile sector and cotton exporters alike are reluctant in pledging deals even as rates plummet.
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