Deterioration in the textile industry, faltering New York cotton futures (ICE) prices, wholesome arrivals of new crop cotton in Australia, Brazil and Argentina, general downturn in the global economic condition and widespread social, political and economic unrest and uncertainty are pressuring cotton and textile industry unmistakably. Therefore, local lint prices in Pakistan are also persisting downwards.
With mills as sellers of several kinds of cotton, only the exporters are displaying a modicum of interest in purchasing cotton. Mills are mostly curtailing their spinning output because cutting down yarn output reduces their losses. Moreover, reports of further reduction in gas and power supply, particularly in Faisalabad and other textile towns and cities in Punjab, is adding to the woes of the textile industry.
Seedcotton (Kapas/Phutti) prices which were generally obtaining between Rs 3,500 to Rs 4,500 per 40 Kgs last week were said to be ruling between Rs 3,000 to Rs 4,000 per 40 Kgs on Thursday, though leftover seedcotton quantity in the market is negligible.
Similarly, the price of ginned cotton in both Sindh and Punjab which was being offered between Rs 10,000 to Rs 12,000 per maund (37.32 Kgs) last week is now being offered from Rs 9,000 to Rs 11,000 per maund with scant buyers. Some cotton with low mike and inferior grade sold as low as Rs 9,000 per maund.
It is generally estimated that less than 150,000 bales from the current crop (August 2010 - July 2011) are left unsold in the market. Brokers said in Karachi that Karachi Cotton Association (KCA) ex-gin prices of grade three cotton has been reduced by Rs 1,000 per maund (37.32 Kgs) from Rs 12,000 to Rs 11,000 per maund since the beginning of this week.
Generally quiet condition prevails in the cotton market with very small reported business because textile mills remain in a problem as their yarns are either not selling due to lack of parity with the prevailing cotton prices, or selling in small quantities.
Europe, USA and elsewhere will be closing for good Friday, April 22, though Easter Monday on Monday, April 25, 2011 over an extended holiday.
Thus full business should resume Tuesday next and the idea for cotton prices would be better known by the middle of next week. Reports are rife that hedge funds are also releasing their positions which they may again activate next week. This step is also pressurising the cotton prices in an overall way.
In Pakistan, the Agriculture Development Commissioner Inayat Ullah Khan has stated that the federal government has decided to increase the cotton growing area for the next season (August 2011 - July 2012) by further promoting the cotton crop sowing in Bhakkar, Sargodha, Jhang, Mianwali and the Potohar plateau of Punjab.
Reports added that the policy of inducting new cotton areas or boosting existing cotton areas would also be extended to Dera Ismail Khan and Tank districts of the Khyber Pukhtunkhwa province, and also stretch the cotton growing areas to Balochistan in such areas as a Sibi, Loralai, Nasirabad, Chagai, Dera Bugti, Jaffarabad, Uthal, Lasbela and Khuzdar districts.
Government of Pakistan believes that by taking these steps a target of 15 million domestic size bales of cotton output should be achieved during the forth coming season (August 2011 - July 2012). Of course this achievement is projected due to the very high seedcotton (Kapas/Phutti) prices received by the growers in the outgoing season (August 2010 - July 2011). However, such projections remain subject to conducive weather.
Corroborating this optimism, Amer Nasim, a member of the Karachi Cotton Association (KCA) Brokers Advisory Committee informed that an investment of Rs 2,000,000,000 is being made in Sindh to establish 25 new ginning factories, preferably in the Sanghar district, as a result of the extraordinary profit reaped by the growers and the ginners during the current season (2010 - 2011). Cotton trade at large benefited from the global increase in cotton prices.
In ready sales of cotton reported on Thursday, 200 bales of a relatively lower grade and micronaire from Mirpurkhas in Sindh were sold at Rs 9,000 per maund (37.32 Kgs), then 200 bales from the same station sold at Rs 9,500 per maund, and later 200 bales more from the same station sold at Rs 10,000 per maund, while yet another 200 bales from Mirpurkhas also sold at Rs 10,400 per maund.
In the Punjab, 200 bales of lower grade cotton from Harunabad sold at Rs 9,000 per maund while 400 bales from Shujabad sold at Rs 9,500 per maund. In the evening, more pressure on cotton prices appeared on the market. This week on the economic and financial front, concerns regarding the increasing debt and lowering of credit rating of the United States of America worried the sundry markets.
Though equity markets picked up later, but general fear pervaded the global economic scene when Standard and Poor's downgraded its outlook for the United States from "stable" to" negative" due to its snowballing sovereign debt. After the sovereign debt fears that have plagued the Eurozone since the past couple of years, now the downward revision of American debt rating is a serious affair. The rise in glod price surpassing $1,500 per ounce this week is clearly symptomatic of the fear of global economic weakness continuing unabated.
Prime Minister Putin of Russia has warned the western world against its economic complacency and said that high raw material and hydrocarbon prices could dent any possible economic recovery easily. Putin proposed that there is a need for evolving a new economic model for development to put back the global economic recovery on the rails.
However, problems persist in several areas which refuse to go away. For instance, despite the bailout, Portugal still is compelled to pay more to raise capital. The trade surplus has dipped in Japan following the tsunami. India remains mired in massive and unprecedented corruption scandals. These examples show that the global economic recovery still remains elusive.