Turnover was slow on the cotton market on Thursday though prices were mostly maintained in a stable market. Both the global and the local cotton markets were uninspiring as demand remained soft. Competition from hydrocarbons like polyester also continued to impinge on the market following the continuous decline of crude oil prices. Despite a large loss of nearly five million bales (155 kgs) in cotton output this season (August 2015 / July 2016) with an output now projected at only about 10 million bales in Pakistan, prices of lint have not hardened in our market.
The nearly lackluster appearance of our market is also the payments problem our mills are facing. Textile mills remain in bad shape, while most of the components of our cotton economy, namely the growers, the ginners, the mills and the value-added sectors are going through a very rough patch.
Report from the textile sector added that open end mills were suffering severely. Gas shortage in Punjab remains a large and substantive problem for the textile industry. Moreover, mills sector has complained that mixing seeds and their poor quality has been responsible for low cotton output besides being responsible for low quality of cotton fibre.
The Chairman of the All Pakistan Textile Mills Association (APTMA) Punjab, Aamir Fayyaz said early this week that Punjab textile mills will perforce be closed down throughout the province at the end of this month due to delay in the announcement of the bailout package for the textile industry by the government. He further added that all the textile associations from Punjab have contacted APTMA for collective action against the government's lack of interest towards the problems of the textile industry. The spinning sector is particularly reported to be on the verge of a shutdown.
On Thursday, seed cotton (kapas / phutti) prices in Sindh are said to have ranged from Rs 2000 to Rs 2900 per 40 kgs, while in the Punjab they reportedly extended from Rs 2,000 to Rs 3,000 per 40 kilogrammes according to the quality. Business was reported to have been conducted in moderate quantities.
Lint prices were mostly stable during this week. Crop size during the current season (2015 / 2016) is likely to be about 10 million bales (155 kgs), while the mills consumption may be around 13.5 million bales of cotton. Mills sources informed that they have already booked 1.8 million bales for import till this time and are likely to import a total of 2.5 million bales during the current season (2015 / 2016).
In ready sales on Thursday, 200 bales of cotton from Nawabshah in Sindh are said to have been sold at Rs 5,250 per maund (37.32 kgs), while 400 bales from Rohri were said to have been sold at Rs 5,315 per maund. In the Punjab, 200 bales from Vihari were said to have been sold at Rs 5,125 per maund, while 200 bales each from Chichawatni and Hasilpur sold at Rs 5,150 per maund, and 1,000 bales from Sadiqabad reportedly sold at Rs 5,600 per maund. Exporters were conspicuously missing from the market.
On the global economic and financial front, the Federal Reserve has broken the ice by finally increasing the interest rates this Wednesday from 0.25 percent to 0.5 percent. The move of the United States Federal Reserve had been coming since the past several months but now it has materialised. However, such a move which may be followed gradually every quarter during 2016 may not be so obvious a panacea to the persisting ills by the American economy.
First and foremost, any betterment in the American economy remains concurrent upon the essential improvement in other parts of the world. However, large sectors of the global economy continue to remain in the doldrums. China, the world's second largest economy, remains mired in several difficulties. Low growth, fall in manufacturing, drop in commodity prices and other industrial outputs is dragging the Chinese economy interminably. Thus, China's economic slowdown hardly provides any scope to verily project any growth in the global economy.
There are even fears expressing the possibility that the European Union may collapse. According to Today's programme's John Humphrys, the founding principles of the European Union are under threat. On the other hand there are already projections that crude oil prices could fall to $30 a barrel while an oil glut could continue to grow. Russia is said to be bracing for $30 per barrel oil price.
Terror attacks accompanied by the fears that they are poised to go global have hit the world's economic mechanism terribly. Moreover, fears of wider global terrorism remain in the realm of frightening possibility. Besides the massive corruption and lawlessness in Latin America, and indeed throughout the emerging economies, the initiative taken by the United States Federal Reserve to increase the interest rates could squeeze the developing countries and possibly throw them into a recession. The Federal Reserve largesse of low interest rates over the past ten years benefited the emerging markets unmistakably. That helpline is now bound to be withdrawn gradually as the Federal Reserve continues to increase the interest rate over the next year and beyond.
According to another report, due to the large decrease in oil and oil related products, oil companies are no more interested to invest in oil drilling activity or finish the wells which were under completion due to paucity of capital. Oil drilling companies are said to reduce their capital spending by 20 percent during 2016 while they are already reported to have cut their capital spending by 35 percent during 2015, according to a report by Bloomberg. The fear is that the sharp decline in the hydrocarbon prices appears likely to continue during 2016. In America, the shale oil producers are in a serious difficulty as cost of production exceeds the current sale price which has suffered a sizeable fall over the past several months.
Therefore, in the net analysis, any global economic gains have been outstripped by various negative developments. Chinese stocks remained flat at midweek. In the Eurozone, the economy slowed slightly till now and lost momentum at the year end. The Purchasing Manager's Index (PMI) fell to 54 compared to November's figure of 54.2. Lower tax receipts and declining commodity prices will increase Australia's budget deficit sharply. Thus the global economy is hardly out of the woods.
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