Cotton rates in the domestic market have gone up by Rs 200 per maund (37.32 Kgs) over the past ten or twelve days. With only very small quantities of free or floating stocks left in the local market, probably only 75,000 bales, and with New York Cotton Futures prices (ICE) having risen by about 15 or 16 cents per pound over the past three weeks or so, it was almost certain that local lint prices would also rise.
Thus the July 2011 contract on the New York cotton futures market was last reported to be at US Cents 160.61 per pound on Thursday evening Pakistan time. Extremely dry condition in Texas which grows nearly half the crop in USA and also somewhat similar dry condition in China led to rise in cotton prices due to fear of paucity of supply over the next several months.
In fact, Texas is said to be facing such a serious drought the like of which has not been seen in the United States since the past one hundred years. Is has been stated that even the Dust Bowl days of the early 1930's are no comparison to the drought presently existing in Texas.
As a result of cotton prices having stopped to fall further, and which in fact have risen materially in recent weeks, our market is witnessing a steadiness in both raw cotton and yarn prices. Yarns which had accumulated in the spinning factories have started selling at admirable speed. Therefore, a chance of betterment is expected in both the cotton as well as the yarn markets.
Arrivals of new crop (August 2011-July 2012) are still far away with small quantities expected to arrive in June or July 2011, but real arrivals in commercial quantities may have to wait till August 2011 or thereafter. Of course, conducive weather will remain an important variable for the new crop to start arriving normally.
Cotton output projections for the new cotton crop (2011-2012) remain unchanged at 13.5 million to 14 million bales of domestic size on an ex-gin basis while mills consumption for the new season is projected to range between 14.5 million bales and 15 million bales. Import figures are expected to range from two million to 2.5 million bales. There is some reported sales activity between one mill to another in our domestic market. Now mills are also asking for higher prices for their saleable cottons.
The annual budget for the fiscal year 2011-2012 is scheduled to be announced by the federal finance minister Dr Abdul Hafeez Shaikh on Friday (3rd June 2011) which will be presented to the National Assembly of Pakistan after receiving earlier approval from the Federal Cabinet.
In other news, The Cotton Association of India is proposing to organise an export promotion tour to Pakistan in the second half of July 2011. As a prominent exporter of cotton to Pakistan, a delegation from India is being arranged to strengthen bilateral trade relations between the two countries. The visit is reported to be organised with the co-ordination of the All Pakistan Textile Mills Association (APTMA) and the Karachi Cotton Association (KCA) and the delegation is proposing to visit Karachi, Lahore, Multan and Islamabad for about one week. Traders added from Karachi that several issues of cotton sales are outstanding due to reported difficulties being faced by importing Pakistani mills regarding Indian cotton.
According to a press release of the Karachi Cotton Association (KCA) issued on last Saturday (28th May 2011), it has raised strong objection against the decision of the Securities and Exchange Commission of Pakistan (SECP) to approve the introduction of futures trading in cotton by the Pakistan Mercantile Exchange Limited (PMEX). The KCA has raised the fundamental objection that adequate consultations with the stakeholders, namely the Karachi Cotton Association (KCA), the All Pakistan Textile Mills Association (APTMA), Pakistan Cotton Ginners Association (PCGA), the Farmers Associates Pakistan (FAP) and the Pakistan Cotton Forum (PCF) have not been made.
The KCA also contends that the PMEX International Futures contract is based on New York Cotton Futures contract and that it is a cash settled contract which does not envisage delivery. Though the PMEX claims that such a contract will provide hedging facility, the KCA feels that the permission given to PMEX to run a cotton futures contract is likely to breed speculation, gambling and other irregularities in the cotton trade. In fact, the cotton trade believes that any cotton futures contract must be run and regulated by the members and brokers of the KCA who possess vast experience in this field running over many decades and have the proper expertise and infrastructure to safely run a cotton futures market in the overall interest of the cotton and textile trade which will benefit the national interest immensely.
On the global economic and financial front, the sharpest fall in share prices on the United States equity markets at midweek occurred since the last one year. European and Far East markets prices also fell in tandem. This decline in equity prices followed reports that the American business hired fewer workers than was anticipated during the month of May 2011 and also that output in the manufacturing sector slumped to its lowest level since the past couple of years.
These reports available at midweek clearly indicated that economic recovery in the United States remains slow and unsatisfactory as evidenced by its decline during the second quarter of this year. Moreover, it was further reported that factory growth had gone down around the world breeding fears that the export potential of American companies will decline.
There was also much economic trouble elsewhere around the world. Besides the fall in sales of General Motors in the USA Japanese automobile sales fell by nearly 30 percent, the lowest since 1968, following the earthquake and the tsunami that shook Japan in March this year.
Greece remains in the doldrums at its financial woes will not go away. In fact, its credit rating has been slashed further this week by Moody's. Australian economic growth has fallen this year following massive floods and cyclones. In the United Kingdom, weak manufacturing data and continuing woes in the market convinced small investors that any global economic recovery remains patently dicey. Spain, Iceland, Portugal, Ireland and Italy continue to suffer a very unsavoury future as protestors there are hankering after any employment opportunity they may come by, which presently remains remote.
With war and socio-economic disturbances persisting over vast swathes of North Africa and the Middle East, and also in Afghanistan, global economic recovery remains a distant dream at present. Islands to themselves, only a couple of countries like Germany or Switzerland remain apparently immune from the global economic and financial worries. Indeed, now the Swiss Franc has become a currency at par with gold holding a safe haven status.