Cotton futures prices in New York (ICE) which had fallen to US Cents 174 last week, after having hit the all time high level earlier a couple of weeks ago (on 18 February 2011) of 211.12 cents per pound for the key March 2011 contract (as it then was), have again gained steam for the new benchmark contract of May 2011 which was around 207.60 Cents per pound at one time on Thursday.
The rejuvenated May 2012 signifies that there is still a lot of basic strength for the 2010-2011 cottons and this price sentiment could conceivably spill over into the futures contracts of the next season ie 2011-2012. It is now becoming more and more manifest that though that global shortages compared to available supplies have been primarily responsible for the fantastic rise in fibre prices, but the Chinese demand for cotton appears to have been substantially responsible for unprecedented rise in the prices of this essential commodity.
And now with reported drop in output in China and India and increased intake of cotton by China which seemingly will remain insatiate over the incoming several months, there appears no immediate possibility of any sizeable drop in fibre prices for the time being.
Adding fuel to fire, the increase in Brent crude oil prices up to US dollars 120 per barrel is bound to increase the price of staple fibres like polyester. Thus the prices of man made fibres like polyester staple fibre (PSF) may keep rising in unison with the natural fibres like cotton. Moreover, the uncontrollable inflation globally seems out of hand from China to the European Union, the United Kingdom to the United States of America.
Therefore, with quantitative easing in the United States and other liberal measures to flood the markets with cash in such strategic areas like the Eurozone and the United Kingdom, hedge funds are unlikely to relent their stronghold on the prices of commodities in short supply, cotton being no exception. The transition of cotton season from the present (2010-2011) to the next is likely to continue being quite erratic and volatile.
Lint prices in Pakistan have generally moved up in a sort of correlation with the New York futures prices for comparable upland styles. Unprecedented curb and control of liquidity in Pakistan is stifling any sizeable increase in lint prices in tandem with global values at present. Credit crunch in Pakistan has never been so acute.
In view of the above, seedcotton and lint prices, nevertheless, are both prevailing at record levels at present. Thus seedcotton (Kapas/Phuti) prices in Sindh were said to have been prevailing between Rs 4,200 to Rs 5,400 per 40 Kgs, while in the Punjab they were said to have been even higher in the range of Rs 4,200 to Rs 6,000 per 40 kilogrammes.
Lint prices for ready cotton in both Sindh and Punjab were also said to be prevailing in the record range of Rs 12,000 to Rs 13,000 per maund (37.32 Kgs), according to the quality. If there was no stringent credit crunch in the market, ready cotton prices could have conceivably risen to Rs 14,000 or even Rs 15,000 per maund in the ready market.
This season (August 2010 - July 2011) total output of cotton in Pakistan could touch 11.7 million (11,700,000) bales domestic size on an ex-gin basis. Due to sizeable loadshedding and interruptions in gas and power supplies, particularly in Punjab, mills consumption could vary between 13.5 million (13,500,000) to 14 million (14,000,000) local size bales. About 800,000 imported bales (170 Kgs) had already arrived till January 2011, and other shipments were also trickling in. Moreover, there were reports from Karachi that settlements of cotton contracts at new revised prices were in progress between the Pakistani mills and the Indian shippers.
The projections for cotton output for the next season (August 2011-July 2012) were given as 14 million (14,000,000) to 15 million (15,000,000) domestic size bales on an ex-gin basis. Against this anticipated output for the next season, domestic mills are likely to consume between 15 million (15,000,000) bales to 15.5 million (15,500,000) bales, thus necessitating an import of about one million bales (170 Kgs). Recent rains in the cotton belt have delayed early cotton sowing by about fifteen days.
For the current season (2010-2011), the Pakistan Cotton Ginners Association (PCGS) has shown seedcotton (Kapas/Phutti) arrivals till the first of March, 2011, at 11,502,428 domestic size lint equivalent bales on an ex-gin basis compared to last years national output of 12,656,631 bales, or a shortfall of 1,154,203 bales being 9.12 percent less. Mills have picked up 10,590,272 bales, while the exporters have purchased 517,567 bales. Ginners still hold an unsold quantity of 394,589 bales of cotton in both pressed and loose form.
Sales of ready cotton till the evening comprised 200 bales of cotton from Fakirwalla in Punjab at Rs 12,500 per maund (37.32 Kgs), while 200 bales from Harunabad and 400 bales from Mianwalli both sold at the record price of Rs 13,000 per maund. No sales report was available from Sindh till late in the evening.
On the global economic and financial front, besides the built in malaise prevailing in most parts of the world, particularly the western world, now the uprising and revolt in Libya and political problems several other North African and Middle East countries has further undermined the possibility of any quick recovery. Floods in Australia and earthquake in News Zealand have also added to the global economic problems.
United States and the United Kingdom continue to suffer from large unemployment and emptying of their coffers due to continuing pumping their money into the economy without any signs of tangible recovery. Quantitative easing of money is likely to be extended further with no positive improvement in the United States economy on a countrywide basis. Banks and the automobile sector are reporting gains and profits, but most other sectors keep sinking further downwards. Europe seems to have added a new dimension to its economic problems as tens of thousands of immigrants fleeing North Africa are burdening its southern flanks.
Countries with close economic ties with Libya like Spain and Italy are quite unnerved with the growing problems of fuel and oil supplies as unrest continues in Libya and its borders with Tunisia and Egypt. In India, growing government debt has become a serious economic problem. Thus with a possible protracted civil war in Libya and also fears of oil supply cuts from Iran and Saudi Arabia in case of any conflagration in the Middle East, the world economic condition will be further rattled with additional problems.