Prices of sundry commodities slumped at midweek when they reacted to uncertainties pertaining to economic and financial concerns regarding the deepening debts of Greece, Portugal, Spain and Ireland and whether they would be addressed and accommodated by the Eurozone officials. Unlike earlier hopes and projections, the weaker and peripheral economies of the Eurozone continue to pull down the Euro which is reported to have fallen to a three week low level.
The contagion of commodities liquidation spree also stung cotton futures in New York (ICE) where at one time the benchmark July, 2011 contract recorded low of US Cents 144.80 in the evening on Thursday at Pakistan time. Another negative factor was the forecast announcement of the United States Department of Agriculture (USDA) that world ending stocks in 2011/2012 marketing year would be 47.93 million bales (480 lbs) compared to only 42.52 million bales during the outgoing 2010/2011 season.
Local lint market remained listless on Thursday but mostly maintained its rates with little buying interest from the spinners. However, exporters were reported to be interested in making small time purchases. The general tone and tenor of the ready cotton market was that of quietness as several mills themselves have cotton to sell after the curtailment or cut down of their spinning activity in recent weeks and months.
In fact, some of the mills are laden with stocks of high priced cottons, besides having a pileup of considerable quantities of unsold yarns of sundry counts. Like a number of their global counterparts, Pakistani merchants and millers are faced with the prospects of cancellations or renegotiations of cotton, yarns and textile contracts which has put them in a difficult situation. It could be several months before this abnormal situation can be corrected or rationalised. For the time being, cotton and textile trades are mired in an unprecedented mess.
Therefore, our cotton market is presently stuck in a state of animated suspension. With practically no sales or purchases of cotton or yarns, the markets lack the usual activity. Several mills cannot continue normal production so long larger stocks of expensive cottons remain in their inventories and there are no buyers for their yarns. If anything, it's a buyer's market today for both raw cottons as well as textile goods. Thus the tone of the cotton economy including the textile sector remains patently negative and no improvement is in sight in the near future.
In terms of 170 Kgs. per bale, during the current season (August 2010-July 2011), the United States Department of Agriculture (USDA) has reported production in Pakistan at 11.1 million bales, import at 1.7 million bales, consumption at 13.1 million bales and exports at 0.5 million bales. These figures appear quite reasonable. For the forthcoming season (2011-2012), the USDA has projected production at 13.1 million bales, imports at 1.7 million bales, consumption at 13.7 million bales and exports at 0.5 million bales. However, it is possible the cotton consumption in Pakistan could be higher during the next season between 14 million to 14.5 million bales (170 Kgs).
The seedcotton (Kapas/Phutti) rates, though only equivalent for about 50,000 pressed bales which may be left with the ginners, reportedly ranged from Rs 2,500 to Rs 3,000 per 40 Kilogrames. Lint rates also remained unchanged between the range of Rs 7,500 to Rs 8,500 per maund (37.32 Kgs) in both Sindh and Punjab, though some poorer grades of lint also sold at much lower rates.
Last week the Securities and Exchange Commission of Pakistan (SECP) allowed futures trading (Hedge Trading) in cotton to the Pakistan Mercantile Exchange Limited (PMEX). Futures trading is a sophisticated activity requiring full confidence and support of all the stakeholders from the growers and ginners to the exporters and spinners. It is thus absolutely necessary that all the stakeholders are fully consulted and involved in any such project. Above all, the Karachi Cotton Association (KCA) having more the eighty years experience in running and regulating a ready and futures (hedge) market should be in the forefront in any such venture in cotton is to be successful. Like wise, the cotton brokers of the KCA should also be fully consulted.
In this connection, the Karachi Cotton Association (KCA) has strongly raised objection with the SECP to allow cotton hedge trading to the PMEX. The KCA has also pointed out the deficiencies and difficulties in the proposed method of the PMEX to run the cotton futures market which can lead to unwarranted speculation, gambling and bring undesirable volatility into the market. Specially, the KCA is critical in that the SECP has allowed operation of cotton futures contracts without stipulating the physical delivery of cotton.
It is reported that the All Pakistan Textile Mills Association (APTMA) as well as the Pakistan Cotton Ginners Association (PCGA) are also meeting immediately to discuss the issue and want to be duly heard and consulted before cotton hedge trading in cotton is resumed in the country.
On the global economic and financial front, it may be said that the week started hopefully but at midweek a number of negative news cropped up. Beginning with gasoline prices which slumped in New York, pessimism creeped into the commodities complex activating a notable sell off.
Losses ranged wide from agriculture commodities to metals like silver and extended to the Euro, triggered by reports of weak Chinese industrial output and protest demonstration in Greece against possibility of seeking another financial bailout. Irish and Portuguese economies remain a millstone around the neck of the Eurozone community with no reprieve in sight.
Moreover, six weeks and six thousand Nato sorties on Libya later, no solution or resolution appears in sight of the political impasse. Similarly, simmering socio-political conditions in Yemen, Bahrain, Syria and elsewhere in North Africa and the Middle East promise more socio-economic and political disruption which will certainly continue to undermine any early global recovery.
Thus the Euro remains vulnerable amid unprecedented uncertainty and volatility in the global markets. Moreover, both Britain and the United States continue to pile up more sovereign debts which condition has become increasingly fearful. Also, business and industries around the world cannot function stably when large fluctuations are the order of the day in both financial and commodity markets.
Whether global economic malaise has reached the end of the tether will only be known in due course of time, but fissures in the global economic structure on a large scale are quite manifest, particularly due to the large scale unemployment which has pervaded over a wide spectrum on a universal scale.