Slow business in tight cotton market

High advices from the cotton futures market in New York (ICE) over the past several sessions, dwindling stocks at home and the continuing imbroglio in the Indian cotton export policies and procedures have put firmness to domestic fibre prices over the past of couple of weeks.
Thus the cotton prices which were generally ranging from Rs 9,000 to Rs 9,500 per maund (37.32 kgs) about a fortnight ago have increased to Rs 9,500 to Rs 10,200 per maund today, as per the quality. The ex-gin price of grade three cotton which was fixed by the Karachi Cotton Association (KCA) at Rs 9,200 per maund (37.32kgs) on the 1st of January, 2011 has been ratcheted up to Rs 9,900 per maund on Thursday, demonstrating a gain of Rs 700 per maund.
News that a withholding tax of 3.5 percent on agricultural commodities has been imposed since the beginning of this year, including seedcotton, has provided further firmness to cotton prices. There were also reports that several seedcotton traders in mandi (Market) towns in Punjab including some larger stations like Chistian, Harunabad, Bahawalnagar, Chichawatni, Hasilpur, Sahiwal, Burewalla nand Rahimyar Khan are protesting against the withholding tax and have closed business. This situation has also increased the value of cotton in the market.
Already there are strong protests going on in various parts of the country against shortages of gas and power, particularly in the Punjab where the utility shortages are glaringly high, which are impeding the regular functioning of the textile manufacturing activity across the spectrum from spinning and weaving to finishing and made up textile items.
Chairman All Pakistan Textile Mills Association (APTMA) Gohar Ejaz met the textile minister Rana Farooq Saeed Khan early this week and sought government help in obtaining Indian cotton which had been purchased by Pakistan mills at the beginning of this season at prices reportedly aggregating around US Cents ninety per pound. However, the Indian Government has imposed a set of regulations which have reportedly brought about a chaotic condition regarding the allocations and procedures of cotton export from India. Such decisions by the Indian Government regarding cotton exports are bereft of any rationale and have been given to accusations of corruption regarding the cotton export procedures from India.
Indeed none other that the Director General of Foreign Trade (DGFT), Dr Anup K. Pujari is reported to have castigated the exporters of filing frivolous and fabricated cotton export registrations. Rumours also abound that parties with large cotton export registrations are trading them against large premia which they are demanding.
Whatever the truth and merit in these allegations, the point remained that with extra large surplus of cotton available with India during the current season (2010-2011), they could easily have let the market forces to play their role to the ultimate benefit of the entire cotton and textile trade in India.
In this regard, despite untold difficulties, the Pakistan Cotton Forum (PCF), a federation of the All Pakistan Textile Mills Association (APTMA), Karachi Cotton Association (KCA), Farmer Associates Pakistan (FAP), and the Pakistan Cotton Ginners Association (PCGA) have unanimously opted for totally free trade in cotton which they believe will bring better and more equitable results to all the components of the cotton trade.
In this regard, Chairman of Pakistan Cotton Forum (PCF), Seth Muhammad Akbar has commended the Government of allowing a free mechanism in cotton trade and industry. All Pakistan Textile Mills Association (APTMA) Chairman, Gohar Ejaz, said that the spinners favour the free trade mechanism of cotton wholeheartedly.
In the ready cotton market on Thursday, reported business was scant though ginners kept asking for higher prices. Protests against the imposition of withholding tax from the 1st of January, 2011 on agricultural products kept hampering business with only a sole reported business till the evening of 200 bales of cotton from Sadiqabad in Punjab at Rs 10,000 per maund.
The general price idea of seedcotton (Kapas/Phutti) on Thursday reportedly ranged higher from Rs 3,900 to Rs 4,600 per 40 Kilogrammes in both Sindh and Punjab. Lint prices have also kept escalating since the past couple of weeks and were obtaining from Rs 9,500 to Rs 10,200 per maund where ginners were reluctant sellers.
Cotton output during the current season (2010-2011) was estimated between 10.75 million to 11.25 million domestic size bales. Domestic mills consumption was estimated from 14 million to 14.50 million bales and total imports during the season could range from two million to 2.5 million bales (170 Kgs). Exporters may export between four to five hundred thousand bales during the season.
On the global economic and financial front, no reassuring report or appraisal was forthcoming regarding a definite shift towards any fundamental improvement in the economies of USA and Europe, or Japan for that matter. Eurozone economy continued to be in difficulty with Portugal now feared to call in the day and ask for a massive bailout. There is continued disillusion in Italy while Greece and Spain remain in financial straits.
On the Pacific front, China remains fearful of an untenable inflation where possible property bubbles may upset the economic applecart. Worst floods in a century in Australia may bring down the gross domestic product by a significant one percent.
The good performers these days are said to be the automobile sector, equity markets and the commodity markets. With global finance markets inundated by cheap money from USA, Europe and elsewhere, shares and commodity businesses are booming but the real sectors like manufacturing, housing and new ventures still lack to show any significant improvement. Unemployment situation in the USA, Europe and several parts of the Far East and Latin America remains precarious.
Therefore, reports or projections of any real economic recovery in the United States, Europe and stalwarts like Japan are slow and do not promise any betterment in the foreseeable future. Indeed the much feared currency wars where countries under value their currency to boost exports, in which China and United States are deemed to be the main countries who have lowered the value of their currencies, could destabilise the already precarious equilibrium under which the global trading system is functioning.