The whisper in the air that the TCP may stop sales for a while had good effect on buying which paid dividend in increased return. The ginners were also approached for stuck up stocks, relevant sources said during the week ended on July 9, 2005. The spot rate proved sticky until Thursday on which day cotton demand pushed it by Rs 25 to Rs 2325.
WORLD SCENARIO:
The cotton futures was respectably high on the bank of generally believed fact that consumption will remain higher than the production. The week opening day however was a holiday. On the second day's session futures rose on speculative fund buying to end at a two-month high wiping out an early turndown in the market after trading resumed following a holiday week-end. Traders observed the market had rally on its mind.
They said futures saw only modest losses and trade expectations that demand for cotton will be good later in the year have underpinned the strength. The market took note of news that USDA will ask Congress to eliminate step 2 cotton subsidy, though others remarked that step 2 had a minimal impact on cotton.
On Wednesday futures encountered correction and closed weaker on speculative sales as the market finally began to pull back after surging oversight to a month-high, with analysts predicting more losses in the days to come.
Fundamentally, the market is monitoring the rains, which drenched cotton in the Southern US and the approach over the week-end of Tropical Storm Dennis. Market players observed it was time for the speculators to heighten up and we should see the market come under more pressure. On Thursday, futures recouped losses as speculative fund buying.
The most of the players shrugged off bomb explosions in London which killed dozens of people and wounded score. However, others felt that economic slow down for short term as result of the blasts. Fears are also offset by US cotton production losses as a result of Hurricane Dennis. Besides, USDA weekly export was also being awaited.
Brokers expect US cotton sales to range from 150,000 RBs down from previous week. On Friday U turn was seen as futures turned easier on light speculative sales as most of the trade setback to mull the approach hurricane Dennis and wait for the USDA report next week. About Dennis players are expecting effects either way. However, the October ended at 53.80 and December at 55.47 cent a pound.
LOCAL TRADING:
After weeks of restrain by spinners and millers due to TCP auction the buyers started approaching ginners also rendering price to gain firmness. The spot therefore turned sticky at Rs 2300. The cotton consumers depended too much on the TCP auctions on perception that better cotton was available with the TCP than the ginners.
However, TCP indication that their main job is to help grower was headed by the spinners, had bit buyers perception who lifted from the ginners. However, the first session was TCP's as the buyers had the perception better cotton was available with it. The result was that the session saw increased sales not only by TCP but ginners also.
The purchase was increased as rains in Punjab and Sindh made growers/buyers apprehensive about following development. On Tuesday, TCP sold cotton with impurity which both exporters and local buyers enjoyed. The TCP sold 208,000 bales to mills against 93000 bales of cotton. Exporters apparently had left TCP in lurch as their response was vague.
Spot was unchanged. On Wednesday demand from big buyers continued keeping prices firm. Meanwhile, American decision to end subsidy to growers gradually had practically no affect. The local players said they would rather see the final decision rather than react on news reports. On Thursday pent up cotton demand due to too much dependence on TCP led to sudden outburst in cotton demand for the ginners.
Spot price under the demand for pressure was raised by Rs 25 to Rs 2325 without upcountry expenses. The TCP has to sell all its stocks before July, 2005. Rains have been causing concern as well as joy which needs to wait and see the ultimate outcome. On Friday no deal was struck as buyers expected further rise in the prices.
Rains they expect may damage crop, though growers dispel the idea. The spinners and millers were apprehensive they may not get TCP better quality cotton at the prevailing rate. The corporation has been gradually exhausting stocks. Spot rate was higher at close at Rs 2325.
SUBSIDIES ON WAY OUT?
Subject to passage of legislation by US Senate and Congress, the distortion created by existence of agriculture subsidies in World Trade Organisation rule of free trading will end. However, it may not be so before three years end or 2008. Now the world-renowned cotton and textile experts hope that something new constraints are created to perpetuate subsidies in another shape. Brazil, emerging as the largest exporters of cotton, should be thanked, for successfully waging war against cotton subsidy.
The fact will not only benefit Brazil, but a number of countries of poorest Africa, Asia and Latin America. The WTO ruled earlier, a case brought by Brazil for the end to what is called September 2 credit, and another sear GSM-103 will soon be sent for statutory termination.
The so-called September 2 payments have ranged from $182 million to $640 million annually. Meanwhile world cotton production would fall before 24 million tonnes in 2005-06, down 2.4 million tonnes. The great news is that world consumption is expected to reach an unprecedented 23.8 million tonnes, or 550,000 tonnes more than in the current seasons.
However, attention would focus on Chinese production and consumption. China sent a wrong message by exporting various textile categories which sent European Union and USA on their feet.
They were quick to remind China that it behave or actions deemed necessary will be applied. America was quick to act by capping Chinese imports into America, while EU sat in session and decided some 10 textile categories will be in the case of which China will take care until 2008. China has agreed and it seems that the volcano ready to erupt has mean while stalled.
With subsidies going and countries such as in EU behaviour has been maintained, the WTO is likely to run better than other international fora!
The globalisation of trade was supposed to bring in its wake a lot of opportunities but apparently more challenges are being faced by textile exporters, particularly.
The reservation for good or for bad, appears to be sticky problem that is not in sight. If ceiling or penalty is still being applied, what free trade is. If subsidies in whatever form exist is agreed upon all that are bad and has already destabilised farmers and poor and can be expected to be uprooted any day. The enlightened men and women of 21st century will only watch starvation taking epidemic form.
America has capped imports from China. There China has little to take initiative for its own betterment. But in relation to EU China has some leeway and definitely taking advantage of. The manufacturers and trader of textile items in EU had one pointed out that China had broken the accord, it had agreed on the eve of joining the WTO that it was honour bound to see markets were not disrupted. But when WTO set in on January 1, 2005, and following days and months EU members strongly complained that China had not only completely disrupted the markets in EU countries but left traders and exporters of textiles products in lurch.
China on its own enhanced the levy on textile products but victims openly questioned the levy was the cure of the ills? However, talks were to follow and 10 categories textile items were barred from sort of dumping. But the EU members (victims) still clamour that some Chinese textile exports to the EU does not go far enough. Victims point out that EU production of flax yarn slumped by 25 percent in first few months of 2005 and job loose by textile sector fell by 13 percent.
One hopes in the interest of the world that whatever step EU commission has taken be in the right direction as said France Union of Textile industries has some reservation how the accord will be enforced or how it will help firms which specialise in textile products not covered by the deal.
FIGHTERS ON THE RUN?
The very slow land seemingly ineffective approach to EU authorities regarding 13 pc anti-dumping duty and later withdrawal of GSP facilities of 12 percent custom duty plus a few home constraints has lead to loss. The bedwear exporters otherwise quite diligent to their work of manufacture and exports have come out with an "Appeal" to govt to immediately recommence six percent Research & Development to stall repeat of drop of 20 pc in exports again. Rather, they hope to double the exports to compensate they have occurred loss. The govt by all account appears to have been seized of the occasion and realistically trying to help exporters boost exports.
The point, however, is in reaching the remote and invisible corners to balm the wound. The Association has listed a long demand for immediate cover and it is hoped govt has done away with most of the ills. But in bold the Association want to look into the problem of six percent R&D work resumption of which holds much in store to deliver.
The equal stress is on reduction of export refinance to four percent from existing nine percent. This Association is leader fighter since eighties and has marched whether or not helped arrived from any quarter. They need help and deserve too in the presence of WTO system in vogue which offers vast vistas of opportunities, subject to constraints being removed.
The call was not as relevant for had India and China with self sufficient in chemical and dyes and their own beautifully and attractive designs manufacture textile plants throw us genuine challenge Pakistani exporters have no answer.
TAIL PIECE: The two percent increase is acreage for meeting cotton target at over 14 million bales is likely to slightly hit by monsoon rains and floods. But growers are hopeful that they will be able to save crop from damages and won't disappoint the authorities. This, they said, is normal rains and time and is occurring even in neighbouring India, where growers hope that in some areas they expect resowing will be done.
However, red-alert by growers are required as also by agri extension workers to meet any challenge that could be fought effectively. The 2005 year textile millers and spinners said we are destined achieve the export target.
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