Thursday saw sluggish trading in the ready cotton market in Karachi following two days of virtual closures in the metropolis because of the Muttahida Qaumi Movement (MQM) leader Altaf Hussain's arrest in London on charges of money laundering. Current cotton crop (2013 / 2014) has virtually disappeared from the market leaving less than 100,000 bales (155 Kgs) of unsold cotton with the ginners.
However, due to sizeable surpluses expected to be generated by leading cotton growers for the forthcoming season (2014 / 2015) like United States, China and India, the general feeling amongst traders is that cotton prices may decline in the coming months. Therefore, cotton activity remained slow and sluggish on Thursday.
Some reports from Karachi textile circles indicated that moderate business transpired over the past two weeks from different origins for import of cotton by the domestic mills on both fixed and unfixed basis. Though initial arrivals of the new cotton crop (August 2014 / July 2015) may trickle in over the next several weeks, full scale cotton arrivals must wait till August 2014 or thereafter. Some pest infestation in the new cotton crop in Sindh has also been reported. As a consequence, some loss in output may occur.
Lint pries have gone down locally by Rs 100 per maund (37.32 Kgs) within this week. Now current crop lint from Sindh was reportedly being offered from Rs 6400 to Rs 6700 per maund, according to the quality. In the Punjab, lint prices were said to have extended from Rs 6500 to Rs 6900 per maund in a slow moving market.
The federal budget for the year 2014 /2015 was announced on the 3rd of June 2014. Almost all the Textile Associations have lauded the Budget where in they have seen that many of their suggestions have been incorporated. Brokers said in Karachi that facility to continue duty free machinery has been extended till 2016. Dealers added that cost of refinancing for textile export has been reduced from 9.4 to 7.5 percent. Moreover, the rate of interest on long term loans has been reportedly reduced from 11.4 to 9 percent. Incentives ranging from one to four percent have been given to exports by value - added textile goods categorywise from one to four percent if the exports exceed by more than 10 percent compared to last year. Import duty of one percent and five percent sales tax have been imposed on cotton imports.
On the global economic and financial fronts, the foremost news emanating from the European Central Bank (ECB) indicates in no uncertain terms that the growth in the Eurozone is lagging significantly. Furthermore, the fear of deflation in the Eurozone is a serious concern which is likely to undermine economic growth seriously. Also, the ECB has reduced its deposit rate below zero, viz. to - 0.1 percent which means that the commercial banks will have to pay deposit charges if they decide to lodge their money with the central banks as per reports received in this regard.
The purpose behind the move initiated by the ECB is to motivate the commercial banks to lend more money to commercial enterprises, particularly the medium and small business enterprises, to invest more and push up economic growth in the zone. It is a daring step taken by the ECB being one of the leading central banks like the United States Federal Reserve, the Bank of Japan and the Bank of England. Obviously such a drastic measure taken by the ECB has inherent uncertainties as it is yet to be seen how the commercial banks will react to this measure. One thing is certain that the Eurozone is still facing economic adversities which remain patently persistent and serious.
Not only is the economic growth slow and sluggish in the Eurozone but its commercial banks remained hesitant to lend out money to new or smaller borrowers. Such a situation may push back any economic recovery the Eurozone may have made over the past few years. There are fears that the ongoing deflation in the Eurozone could increase unemployment. Already unemployment figures in the peripheral economies of the Eurozone like Spain, Greece and Portugal remain phenomenal.
Serious doubts remain whether the commercial banks will lend money to the Small and Medium Enterprises (SME's). Moreover, the European Central Bank was expected to announce further policy measures later in the day to stimulate the Eurozone economy. During the first flush after the announcement by the European Central Bank to introduce negative interest rate to encourage the commercial banks to increase their lending, sundry stocks around the world took the decision positively.
Later in the day on Thursday, the United States shares were little changed on the measures announced by the ECB. Indeed the European stocks prices rose to six-year higher levels. The employment report in the United States had yet to be announced. Anyhow, more time is needed to fully digest the measures taken by the ECB to install negative rates of interest if the commercial banks deposit their surpluses with the Central Bank.
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