KARACHI: The local cotton market on Saturday remained sluggish. Market sources told that trading volume remained very thin.
Cotton market analyst Naseem Usman told Business Recorder that ICE cotton futures hit their highest in more than a month on Friday en route to a third straight weekly gain, on growing concerns over the lack of rainfall in and around Texas.
The cotton contract for July rose 2.16 cents, or 2.55 %, to 86.80 cents per lb by 12:29 EDT (1629 GMT), a peak since March 15. It traded within a range of 84.6 and 86.94 cents a lb.
“There’s definitely a bullish environment right now. Consumption is pretty good, there’s a lot of anxiety about new crop, and the drought in Texas,” said Jordan Lea, senior trader at DECA Global. Cotton prices were up nearly 4% so far for the week.
“The situation in West Texas remains dire, as there is still no rain in the forecast. Farmers are also facing much higher input costs this season, as energy and fertilizer prices have gone up sharply,” Peter Egli, director of risk management at British merchant Plexus Cotton, said in a note dated April 22.
Naseem told that as per media reports in its statement vice president Pakistan Central Cotton Committee Dr Muhammad Ali Talpur government has announced a Rs 10 billion package for the cotton farmers. As per package subsidy will be given to the farmers of four provinces on fertilizers, seeds and pesticides.
Mean While , Advisor to Prime Minister on Commerce on Commerce and Investment Abdul Razak Dawood in its tweet on Friday said that “Pleased to announce that MoC has released Rs. 1,154 Million for the non-textiles sector, & Rs 1,346 Million for the textiles sector, a total of Rs. 2,500 Million under DLTL schemes. Hope this will resolve the liquidity issues of our exporters and enable them to enhance exports, “.
Cotton market analyst Naseem Usman told Business Recorder that as per media reports The World Bank has projected around 34 percent decline in Pakistan’s cotton production and estimated at 8.9 million bales for 2020-21 compared to 13.2 million bales in 2019-20.
The bank in its latest report, “Commodity Markets Outlook”, stated that the global production of cotton is projected to fall eight percent this season, led by declines in the US, India, and Pakistan, mostly due to reduced plantings.
Cotton prices are expected to average 23 percent higher in 2021, compared to 2020, followed by a small increase in 2022.
Cotton prices surged 16 percent in the first quarter of 2021 following a strong gain in 2020Q4. Although prices retreated in April, they are still 40 percent higher than their trough in April 2020. The overall price strength reflects upward revisions to the outlook for global consumption, which is expected to average 24.5 mmt in the current season, almost eight percent higher than 2019-2020, it added.
The bank has project Pakistan’s cotton import at 11.03 million bales for 2020-21 compared to 5.55 million bales in 2019-20.
Pakistan, one of the world’s largest cotton producers, is finding it increasingly hard to meet its own needs, a problem that could push up import bills and further hurt its fragile economy, Bloomberg reported.
Years of bad weather, pest outbreaks and better margins on other crops have hurt the quality and quantity of harvest. And the scale of damage is accelerating: production in the current fiscal year is set to tumble to the lowest level in about three decades.
As a result, the country is spending billions of dollars to import record amounts of cotton to feed its textile industry, something it can ill afford to do. Its current account — which posted a rare surplus between July and December — has recently flipped back into a deficit amid higher imports. The move also threatens to boost cotton prices, which have already hit a seven-year high.
Cotton is one of the most important cash crops for Pakistan and commonly referred to as “white gold” by the 1.5 million farmers that depend on it for a living. It serves as the raw material for the textile industry, which provides employment to 40% of the workforce and generates more than half of foreign exchange earnings.
Low cotton output has forced more than 60% of ginners to completely shut their factories in the past three years, leaving hundreds of thousands of farmers and textile workers out of work, according to Jassu Mal, chairman of Pakistan Cotton Ginners’ Association, a group representing about 1,300 mills.
“The cotton crop has shrunk to an alarming level but we don’t see the government taking any serious steps to revive production,” said Mal, who’s also Chief Executive Officer of Sindh Agro Industries and operates Pakistan’s biggest ginning mill in Hyderabad.
In the latest season, Mal had to close at least three of his seven factories and run others at 50% capacity due to the lack of cotton. The company’s number of ginning workers has plunged to 100 from 400 about five years ago.
Pakistan’s cotton production is forecast to slump to less than 6 million bales in 2020-21, the lowest since at least 1992, according to Nasim Usman, chairman of the Karachi Cotton Brokers Forum. At its peak, output was more than 14 million bales in 2004-05.
The government has set a target for 10.5 million bales for fiscal 2022. That’s hardly a consolation as the previous year’s guidance was the same level and production is well short of estimates. Pakistan’s financial year is from July to June.
Moreover, textile industry is booming. Manufacturers are operating at full capacity and on track to ramp up exports, thanks to the resumption of economic activities as coronavirus cases eased in June.
This has caught the attention of Prime Minister Imran Khan, who said earlier this month that the textile industry is short of labourers. Cotton imports soared to make up for the production shortfall, almost doubling to 3.68 million bales in the nine months to March from a year ago, official data show.
During this time, textile exports expanded $940 million to about $11 billion. However the amount was close to being offset by the $870 million increase in textile imports, which consisted mostly of raw materials, over the same period.
The country is paying dearly for overseas cotton and would need to import 3 million to 4 million more bales by June, said Khaqan Najeeb, a former adviser to Pakistan’s finance ministry.
Higher purchases could further boost global cotton prices and widen Pakistan’s trade deficit, which rose more than 120% to $3.3 billion in March as Khan’s government struggles to tame inflation. A weaker rupee raises prices of essentials at home when the country’s balance of payment position worsens.
Pakistan’s long-running tensions with neighboring India could add pressure to the cotton shortage. Last month, the government had initially approved the import of cotton yarn from India, lifting a nearly two-year ban, but Khan’s cabinet later rejected the proposal in a dramatic U-turn, saying trade could not resume until some political issues are resolved.
To revive production, the government plans to offer subsidies for cotton seed and pesticides and may unveil a minimum price for the first time to support farmers, Fakhar Imam, Pakistan’s food security minister, said in February. “The cotton production crisis is deepening in Pakistan. We will have to prevent the farmers who are shifting from cotton to other crops,” he said.
For now, the measures don’t seem to be easing farmers’ concerns. Noor Muhammad, 56, has decided not to sow cotton this year on the seven acres of land he manages in Matiari after experiencing disappointment in the past.
“I borrowed 100,000 rupees ($652) to buy inputs for the crop but a poor harvest never allowed me to pay it back,” Muhammad said, with perspiration dripping from his forehead as he carried a bundle of wheat, another major crop for Pakistan, off to the thresher.
Naseem Usman also told Business Recorder that a delegation of Federation of Pakistan Chambers of Commerce and Industry will met Prime Minister Imran Khan next week. Former President FPCCI Mian Anjum Nisar told this to the regional convener of the Cotton and Textile Committee Malik Talat Sohail during a meeting that a strategy regarding increasing the production of cotton will be on top of the agenda.
Meanwhile, President Multan Chamber of Commerce and Industry Khawja Salahuddin has written a letter to Governor State Bank of Pakistan to ensure the provision of crop insurance to the cotton farmers.
Hanif Lakhany, vice president FPCCI and senior vice chairman Pakistan Yarn Merchants Association and vice chairman Farhan Ashrafi & convener on FPPCCI Central Standing Committee on Yarn trading while urging Prime Minister Imran Khan to formulate lasting and stable economic policies to take the country out of the economic crisis
The spot rate remained unchanged at Rs 11300 per maund. The Polyester Fibre was available at Rs 205 per Kg.
Copyright Business Recorder, 2021