Local lint business remained minimal till Thursday afternoon due to a variety of reasons. Textile mills have remained mostly nonplussed following the frantic and frenzied performance of New York cotton futures (ICE) because it is not only the ethereal height that cotton prices reached persistently over the past four months, but its erratic and aberrant performance remained the hallmark of its unprecedented activity.
The sharp rise and fall in the prices of New York cotton futures remains unprecedented and is even being described as hazardous by some traders. However, the tightness of physical cotton prices remains a function of short supplies in the market. This tightness may prevail for another four or five months, where after it may relent with the advent of the new season (2011-2012)
Just at the beginning of this week (7th March 2011), all the frontal months, viz. March, May and July 2011 contracts were ruling above 220 cents per pound with March 2011 delivery flaunting its braggadocio up to 227 cents per pound on the New York cotton futures (ICE) market. However, on Thursday (10th March 2011) at last reckoning in the evening (Pakistan Time) at one juncture the May 2011 contract was lower at 204.58 cents per pound after earlier touching 202.27 cents per pound. Likewise, July and October contracts went below two dollars a pound and were being quoted at 194 and 152 cents per pound.
Against this background, local lint prices ranged at a record level between Rs 12,000 to Rs 14000 over the past three days but conceded Rs 500 per maund (37.32 Kgs) on Thursday. Business was slow and sporadic at best because some mills did not find yarn prices in parity with the high cotton prices. In fact, most business talk revolved around selling cotton on credit basis. However, even with less buying, some exporters were also reported to be exploring the market.
Thus both seedcotton (Kapas/Phtti) and lint prices were relatively easier on Thursday. After ruling between the record range of Rs 4,500 and Rs 6,400 per 40 Kgs in both Sindh and Punjab throughout this week, seedcotton prices turned lower on Thursday to range between Rs 4,500 to Rs 6,000 per 40 kilogrammes.
Similarly, ginned cotton prices which were ruling at the record range of Rs 12,000 to Rs 14,000 per maund (37.32 Kgs) earlier this week, they went lower in the range of Rs 12,000 to Rs,13500 per maund on Thursday, according to the quality. This season (2010-2011), Pakistan is expected to produce around 11.7 million domestic size bales on an ex-gin basis from which about half a million bales would be shipped out.
Some local mills could not cover their cotton requirements adequately and also did not receive the anticipated cotton supply against their purchases from India. Therefore, during the forthcoming months, some mills may close their spinning operations for two or three months till the arrivals of the new crop (2011-2012)
The temporary closures could start from April and may continue till May/June 2011. A few mills may opt for producing finer counts of yarns or else change their mix. A few spinning units are already said to have closed down. Ginners are said to be holding about 300,000 unsold bales of cotton from the current season (2010-2011) and expect another seedcotton supply for about 100,000 lint equivalent bales for the remainder of the season.
Regarding the next crop (2011-2012) in Pakistan, preliminary projections put it in the range of 14 million to 14.5 million domestic size bales on an ex-gin basis provided the weather remains clement. Such a high projection is due to the record high seedcotton prices received by the growers during the outgoing season (2010-2011). If markets remain conducive mills consumption in Pakistan may rise to the range of 15 million to 15.5 million domestic size bales.
Cotton merchants added from Karachi that basically the supplies of physical cottons remains short throughout the world and thus there are few possibilities of cotton prices coming down any time in the near future. On the global economic and financial front, equity markets which were earlier showing improved performance again suffered at midweek following escalation of civil war in Libya.
China suffered its first trade deficit in February 2011 in almost two years. Moreover, dearth of housing accommodation in China is becoming a serious social issue along with rising inflation. In the mean time, Brazil overtook Italy to become the world's seventh largest economy. However, the rising value of Brazil's currency real against the United States Dollar may hurt exports and also impede quicker economic growth in Brazil.
The price of gold touched an all time high of US Dollars 1437 this week signifying global political uncertainty due to Middle Eastern and North African turmoil in several countries. Thus the rush for gold as a safe haven confirms that from the fringe countries in the Eurozone to United Kingdom and the United States, the global political as well as the economic condition remains very unsettled and unpredictive.