Cotton futures prices tumble after attaining Himalayan heights

New York Cotton futures (ICE) tumbled this week in no uncertain terms when the retiring March 2011 contract reached US Cents 211.02 per pound on last Friday but has since fallen to around 180.64 cents per pound (About 5:35 Pm Pakistan time). This denotes that the futures cotton price lost a staggering 31 cents per pound creating hurdles for both the buyers and the sellers.
In fact, some operators felt that lack of jobbers on the market as was evidenced in the "open outcry" system previous to the introduction of the electronic system has added to the intrinsic volatility of the market. Be that as it may, last week when cotton futures prices were at their topmost and cotton growth of other origins roughly comparable to higher Pakistani styles were selling at US Cents 230 per pound, the importing cost after adjustments for quality and sundry expenses, was around Rs 14,800 per maund (37.32 Kgs), but the highest ever Pakistani lint sold was at a record price of Rs 13,000 per maund (37.32 Kgs) during the second and third week of this month.
However, now local lint prices have simmered down in correlation with the downturn in New York cotton futures prices so that domestic seedcotton and lint market has become lackluster exuding a bearish sentiment. Volume of business also reportedly decreased on Thursday with buyers and sellers again trying to find a new price for settlement of several existing local contracts according to the prevailing "ground realities".
With this background, seedcotton (kapas/phutti) prices which were prevailing between Rs 4,500 to Rs 5,500/Rs 5,900 last week at their peak period have now slithered down to range between Rs 4,000 to Rs 5,200 per 40 kgs on Thursday as both mills and the exporters have become reluctant buyers. A notable money crunch in the market is also responsible for the hands off attitude of the buyers.
There were also reports that some of the remaining seedcotton (kapas/phutti) in the market is piling up in the ginning factories as ginners are not keen buyers with buyers both in the local and international cotton arena withholding their cotton purchase programme for the time being, thus softening the market further. The gloom on the global cotton market resembles the dejection on the domestic cotton market on pari passu basis. In fact, brokers added from Karachi that sundry other markets like the equities, yarn and fabrics were also exhibiting a weak tendency due to paucity of funds in the markets.
Thus seedcotton prices in both Sindh and Punjab reportedly ranged between Rs 4,000 to Rs 5,200 per 40 kilogrammes on Thursday. Similarly, prices of lint cotton were said to have ranged between Rs 11,000 to Rs 12,000 per maund (37.32 kgs) with scant reported activity.
Actual cotton sales reported till late in the evening comprised of 600 bales from Sanghar in Sindh at Rs 11,000 per maund (37.32 kgs), and some better quality of 400 bales from Rahimyar Khan in the Punjab at Rs 12,000 per maund. Otherwise, business continued to be reported as drab and dull.
Recent assessments now put total cotton output during the current season (August 2010-July 2011) at 11.67 million domestic size bales on an ex-gin basis. From this, mills consumption is projected to range between 13.75 million to 14 million bales, while the exporters may be able to ship upto 500,000 bales of cotton. Next year's (2011-2012) projected sowing ranges variously between five to six percent higher compared to the current season.
Overall it is deemed that the chain reaction of political and economic problems in North Africa and the Middle East will have significant effect on all types of business around the world and will also effect Pakistan. However, as Pakistan is mostly self-sufficient in food and fibre, our difficulties will be comparatively on a lower scale. In fact, presently our wheat and rice are surplus and are destined for export. Compared to the overall size of our textile business and our sizeable domestic cotton output even the raw cotton deficit of Pakistan is marginal. We have the potential to augment our cotton production sizeably in the near future with better agronomic practices and the introduction of genetically modified seeds.
With the ousting of the Tunisian president earlier followed by the removal of Hosni Mubarak in Egypt, severe turmoil has gripped Libya, Bahrain, Yemen and trouble is also brewing up in Jordan, and in other neighbouring countries. These developments and their proliferating nature can suddenly put the global socio economic situation under great strain. Conceivably, these developments have the portents of a socio economic catastrophe the likes of which the world has never seen.
Eurozone, barring the ever grand economic performance of Germany, besides its earlier tribulations with Greece, Ireland, Spain and Portugal, has Italy now to join the depressing economic conundrum. With a sizeable trade link with Libya which has run amok, Italy may not be able to maintain its economic responsibilities to keep it going.
Iranian ships have passed the Suez Canal heading towards Syria and are another presence in the Mediterranean Sea which are offending the Israelis. Any blockade of the Suez Canal is likely to send crude oil prices hurtling above Dollars two hundred per barrel.
Furthermore, Japanese exports have gone down and Japan is reporting its first trade deficit in twenty two months. Mammoth telecom scandals in India and reports of destabilisation of the government of prime minister Manmohan Singh by the opposition parties is also a scaring prospect for South Asia as fissiparous tendencies in India can gain ground leading to regional infirmity.
From the blood bath going on in Libya to the fears of the Russian Republic that insurgents can further damage its integrity, the socio economic, and indeed the widespread political scenario, all have frightening portents of further downturn on the global economic and financial condition. Therefore, cotton trade and industry cannot remain an island to itself.