Upsurge in cotton prices

Quantum jump in New York cotton futures prices in recent weeks coupled with widespread rains in the cotton belt in Punjab now also extending to several areas of the cotton belt in Sindh has resulted in upswing in domestic lint prices.
Current crop (2006-07) lying unsold with the ginners has now fallen close to 75,000 bales which is a trickle compared to an estimated 16 million or more of bales (170 kgs) required annually by the Pakistan textile industry.
With Chinese cotton consumption this season (2006-07) expected to increase to 50 million (480 lbs) bales, they need to import 30 million or more bales to supplement their buffer stocks to carry them comfortably to the new season (2007-08). This scenario should provide enough hype in trading circles to keep fibre prices at higher levels.
Just recently we were content to keep frontal months on the New York cotton futures market above 50 cents a pound, but now it is reaching 60 cents a pound while the new crop (2007-08) prices have already breached the 60 cents per pound barrier on last Wednesday on benchmark December 2007 basis. Any pressure on the greenback will also aid in improving the fibre futures prices in New York.
Early monsoon rains have been pouring in northern mountains and central areas of Punjab since the past two or three weeks. However, this week saw good quantity of rains in the cotton belt in Punjab and during the middle of this week the rains also made their incursion in to several cotton growing areas in Sindh.
From the standpoint of cotton crop (2007-08) development, up to now most rains in the cotton belt have been welcome but they may delay the arrival by a couple of weeks. Weather pundits in Pakistan have forecast marginally more rains to pour this monsoon season.
In addition to 5,000 bales of new crop (2007-08) cotton from Sindh sold over the past couple of months for August 2007 delivery, 200 bales each of new crop were sold earlier this week on last Monday and Wednesday bought by a mill and an exporter at Rs 2525 per maund (37.32 kgs).
That brings the total reported sales of new crop cotton from Sindh to 5400 bales. Now the ginners are not offering any more new crop cotton because of fears that rains being received in several parts of the cotton belt may delay seedcotton arrivals and therefore the pressing of bales may be interrupted. Current crop prices generally ranged from Rs 2400 to Rs 2800 per maund according to the quality.
Earlier this week, small quantities of seedcotton (kapas/phutti) in stations like Jhudo, Pangrio, Tando Ghulam Mohammad, Chor and Lar in Sindh were bundled together to form two truckloads and dispatched to Burewalla in Punjab at Rs 1150 per 40 kgs ex-farm which would incur another Rs 100 per 40 kgs to reach the ginning site in Punjab. Cotton prices in Pakistan for the leftover quantities became tighter following recent rains in the cotton belt and upswing in international cotton prices with initiation of cotton buying by China which led to rise in fibre prices on the New York cotton futures market in the open outcry sessions.
Mixed reactions are being received from the various sectors of the textile industry regarding the federal budget announced on the 9th of this month. Several spinners appeared satisfied because the government had issued notification annulling the one percent surcharge on imported cotton.
Chairman of All Pakistan Textile Association (Apta) Adil Mahmood also appreciated the decision of the State Bank of Pakistan to relax the prudential regulations allowing borrowers to obtain finance up to four times the injected equity in the company.
While appreciating government decision to allow import of long staple cotton through the land route, spinners also demanded that import of medium staple cotton should also be allowed by the land route.
However, the exporters of textile apparel goods were reported to have urged the government to issue a textile package in order to save them from a calamity. The Textile Apparel Forum (PAF) said to represent the Pakistan Readymade Garments Manafacturers and Exporters Association (PRGMEA), Pakistan Hosiery Manufacturers Association (PHMA), Pakistan Cotton Fashion Apparel Manufacturers and Exporters Association (PCFA) and the Pakistan Sweaters Exporters Association (Paksea) have assailed the government on many counts.
The Pakistan Apparel Forum (PAF) have criticised the government for increasing the minimum wages to Rs 4600 per month, saying that the prevailing high rate of inflation and high cost of doing business have all added up to making them uncompetitive. Therefore, PAF has sought extension of six percent research and development support till the year 2010, reduction of income tax on exports to 0.25 percent and also special discounted gas tariff if their industries are to survive the international competition.
On last Wednesday, the New York cotton futures prices in the open outcry session were catapulted to three months high levels. The July 2007 delivery settled at US cents 55.75 per pound (up by 145 points), the October 2007 delivery closed for the day at US cents 59.70 per pound (up by 250 points), while the bench mark December 2007 delivery ended the session at US cents 61.42 per pound (up by 232 points). The market is said to have closed at a very firm note.