Insipid condition on cotton market

Despite New York Cotton Futures (ICE) prices having risen nearly 18 cents per pound since last Tuesday (May 2011 contract), local lint prices in Pakistan have remained listless despite there remaining hardly 200,000 domestic size bales of unsold cotton from the outgoing (August 2010-July 2011) in the market.
Lack of yarn sales and terrible shortage of liquidity are being given as the prime causes for this bland condition of the cotton market. Textile circles state that nearly a couple of dozen open end yarn units have closed down in the country while more are in line, both open end and ring spinning mills, which will have to close down before the arrival of the new cotton season (August 2011-July 2012). Thus mills buying of cotton is restricted due to piling of unsold yarns. In fact, some mills are reportedly sellers of cotton which they feel is more remunerative than spinning of yarns.
Textile brokers also added from Karachi that yarn prices are weak both here and abroad. Therefore, it appears that New York cotton futures prices are not in sync with the yarn prices in general. Therefore, presently mills buying of cotton is likely to remain minimal as long as yarns are not selling, or at best are selling slowly.
Therefore, because there are no keen buyers of yarns at present, cotton buying is not picking up by the mills. China is also not buying yarns at present as per reports emanating from the textile circles. Removal of restrictions/quotas on yarn exports from India has also reportedly hurt Pakistani mills who were exporting yarns to Bangladesh and China. Reports of imposition of 9 to 34 percent import tax on Pakistani textiles by Turkey is also impeding Pakistani exports, particularly the denim sector.
The continuing shortage of power and gas supply to textile units, despite orders issued by President Asif Ali Zardari to the utility suppliers to provide uninterrupted supplies of gas and power, are reportedly aggravating the difficulties of the domestic textile sector.
Thus some smaller textile units are also closing down as they have also burst their borrowing limits from various banks. With New York cotton futures, basis May 2011 contract, having again reached 215.05 cents per pound on April 07, 2011 and was last reported to be settling at US cents 211.51 Pakistan time on Thursday, domestic spinners have not received any respite in their current operations.
Though the chances of obtaining a good crop next season (August 2011-July 2012) in Pakistan are very good and government has even targeted it at 15 million domestic size bales, it is unlikely to arrive in commercial quantities before the end of July or early August 2011. Therefore, Pakistani spinners are due for several difficulties over the forthcoming months. However, many of the mills are likely to bridge over to the next cotton season once cotton arrivals commence in larger quantities. The sowing of cotton for the next season is progressing with grower sentiment being reported as extraordinarily enthusiastic.
Though some sales of cotton transpired on the ready market, generally the cotton price has remained damp throughout this week. At mid-week scattered sales were effected on the market, but generally lint prices eased by Rs 400 to Rs 700 per maund (37.32 kgs) during the week. However, Karachi Cotton Association (KCA) has kept its ex-gin rate for grade three cotton constant at Rs 12,500 per maund over the past ten days.
On Thursday, seedcotton (kapas/phutti) prices for the meager leftover quantities remained unchanged from Rs 4,000 to Rs 5,000 per 40 kgs in both Sindh and Punjab. Lint prices in both Sindh and Punjab reportedly ranged from Rs 11,000 to Rs 12,200 per maund (37.32 kgs) with nominal activity.
While a couple of thousand bales of cotton reportedly sold in the ready market on Wednesday at rates ranging from Rs 11,600 to Rs 11,900 per maund from such Punjab stations as Hasilpur and Nurpur Nauranga, no ready business was reported till Thursday evening in the cotton market.
On the global economic and financial front, after bailouts sought and delivered to Greece and Ireland, now Portugal has conceded that it has run out of money and is seeking a financial bailout. Preliminary figures indicates that Portugal immediately needs an infusion of United States dollars Sixty billions, but financial analysts put the requisite figure of the bailout to be closer to dollars one hundred and ten billions.
As already feared, contagion of defaults on sovereign debts is likely to travel to Spain which also suffers a similar malady. At this juncture, the European Central Bank is proposing to raise the interest rates for the first time in three years. Such as step will indeed jolt the weaker and peripheral economies which could shatter any meager chance they have to come out of the slough of despond in which they are already stuck. Though it is hoped that such a negative development may not reach Italy and elsewhere, once again other fears have arisen following the recent three pronged natural disasters in Japan.
Reports of sharp drop in business activity in Japan following the recent earthquake, tsunami and the nuclear disaster, have been reported. Japanese quake misery reportedly continues to haunt Japan as some Japanese food items are said to have been affected by nuclear irradiation thereby putting them on suspect list as far as their exports are concerned. Surely this development will have a negative effect on the Japanese economy.
While Portugal's credit rating has suffered, the Japanese are a courageous and diligent nation with extraordinary humane traditions of facing calamities with forbearance and fortitude so that they are very likely to restore their economic health speedily.
With this negative overall situation prevailing around the world coupled with continuing unrest in several Middle Eastern and North African countries, particularly the impasse in Libya, any immediate improvement in the health of the global economic condition in the near future seems doubtful. Brent crude oil hit a two-year high last Wednesday recording a rate of Dollars 123 a barrel.
Above all, gold topped Dollars 1460 per ounce on last Wednesday to a new high level in London signifying its prime position as a safe haven for frightened investors who have not yet gained any hope or confidence of any immediate restitution of the health of the global economy.