Bearish sentiment has engulfed the cotton markets both here and abroad as the hey-day of the record - setting phase of cotton prices presently appears to be over. The scintillating callisthenics of the cotton prices since the beginning of the season, both physical and in the futures markets, is giving way to a more sober consideration of reality due to accumulation of yarns and also other textile products like towels and denims as sales are tapering off to much lower volumes.
Yarn prices are said to have lost between 15 to 25 percent of their value depending from count to count and mill to mill. Many mills have curtailed their yarn output while some mills are even said to have closed their operations. In fact, some cotton exporters and spinners are said to be offering their cotton for sale in the domestic market.
Along with raw cotton, cotton waste prices are also said to have gone down materially. Cotton waste prices are reported to have gone down by Rs 20 to Rs 25 per kilogramme. The bearish scenario is getting scarier by the day. It appears that as for now the party for the cotton bulls is over. Some observers in the cotton market fear that a critical condition for the entire cotton economy is ahead of us.
The recent import taxes imposed by Turkey on Pakistani textile products reported to become effective next July has further aggravated the plight of the textile industry. An estimated 175,000 to 200,000 bales of unsold cotton from the current crop (August 2010 - July 2011) floating in the market has no ready buyers. Gas shortages and power supply deficits continue to hurt the working of the textile mills who are finding it more and more difficult to continue their operations remuneratively.
In view of the prevailing cotton supply glut in the market, daily transactions reported this week have been minimal if at all consummated. The cotton and textile situation is thus becoming more and more frightful if not altogether critical. Lately, symptoms had started appearing in the market that lint prices had become top-heavy.
It may be recalled that New York cotton futures (ICE) had achieved an all time high of 227 cents per pound for the March 2011 contract on the 7th of March 2011 Parallel to this performance, seedcotton (Kapas/Phutti) prices in the Pakistani market had attained an apogee of Rs 6,200 per 40 kilogrammes. Likewise, lint prices had attained a record price of Rs 14,000 per maund (37.32 Kgs) on the 7th of March 2011. Since then, cotton prices are generally going downwards and appear destined to move on a slippery slope precipitating a gargantuan correctional movement.
Though hardly much seedcotton (Kapas/Phutti) remains unsold from the current crop (2010-2011), its nominal prices have gone down from the recent Rs 4,000 to Rs 5,000 per 40 Kgs to Rs 3,500 to Rs 4,500 per 40 Kgs on Thursday. Similarly, lint prices were also lower in the range of Rs 10,500 to Rs 12,000 per maund (37.32 Kgs) according to the quality in a listless market on Thursday.
Sowing of new crop cotton (August 2011-July 2012) is progressing well due to extraordinary phenomenal returns received by the growers for their produce (seedcotton) during the current season (2010-2011). However, as against the earlier assessment, overcast skies accompanied by less heat in the cotton belt may delay the arrival of the new crop by two or three weeks against previous anticipation of an earlier arrival. A new set of negative fundamentals on the global economic landscape will also add to the existing predicaments of the cotton economy at large.
More negative news on the global economic and financial front are likely to extend the misery of the recessionary conditions for much more time to come. Japan is reporting setback to its economy following the natural calamities comprising the earthquake, the tsumani and the consequent nuclear disasters at Fukushima. Unfortunately, more aftershocks and earthquakes continue to rattle Japan which will set back its economic recovery for much more time to come. Also, reported close of some Toyota automobile plants will also aggravate the situation.
A new looming problem of great magnitude is the sovereign debt of the United States of America now estimated to be Dollars 14.3 trillions, also owed to several countries. Recently, the Democrats and the Republicans in the USA had to huddle together to approve a stop-gap arrangement to authorise government expenditure to keep the country functioning.
The ballooning United States public debt is a cause of great concern to every body. In addition to the weakening United States economy, its foray into Libya accompanied by a few Nato Allies is not bringing the desired results soon and is turning into a possible stalemate. A few of the Nato members do not even want to join the enforcement of a no-fly zone in Libya and are thus not participating.
Indian corruption scandals have reached a new high which is not only eating into its body politic but is also scaring away foreign investors. The hopes that India along with the other BRIC countries would contribute to a rehabilitation of the global economy have become dicey.
The scale of reported corruption in India is simply scaring. Thus with Japanese cut in output, fears for a possible financial default by USA leading to its possible approach to the International Monetary Fund and the aggravating and proliferating socio-political condition in North Africa and the Middle East leave little hope of an early restitution of the global economic health.