After conceding prices in a remarkable way during this week, cotton prices both on the New York cotton futures exchange (ICE) as well as the domestic market made some recoveries to stem any further fall for the time being. However, according to trade talk, the long term sentiment continued to remain bearish.
On last Tuesday, New York futures (ICE) sank to nine-month low values recording the settlement rate for December 2011 contract at US Cents 104.39 per pound. A day earlier it was limit down performance all across the board on last Monday. At midweek, the New York cotton futures prices made a modicum of recovery, but traders said in Karachi that Thursday afternoons rate (Pakistan time) was again showing retraction of four cents per pound for the December 2011 and other contracts.
Locally new crop (2011-2012) seedcotton (kapas/phutti) prices from Sindh which had started the season to sell higher at Rs 3,800 fell down to Rs 2,700 per 40 kgs, even lower at Rs 2,500 per 40 kgs for the poor grades, but is now selling at Rs 3,000 per 40 kilogrammes.
In the Punjab, new crop seedcotton price which went up to Rs 4,000 per 40 kgs in June 2011 is now selling at Rs 2,700/Rs 2,800 per 40 kilogrammes. Earlier, poor and some rain infected Punjab seedcotton of new crop had also sold as low as Rs 2,400 per 40 kilogrammes. Since inception of this season (2011-2012), seedcotton prices have fallen by Rs 1,100 to Rs 1,200 per 40 kilogrammes.
The new crop (2011-2012) lint which started selling at Rs 8,700 to Rs 8,800 per maund in June 2011 with practically same or similar rates in both Sindh and Punjab have now fallen down to Rs 6,300 to Rs 6,350 per maund (37.32 kgs). Thus the prices of new crop (2011-2012) have gone down by nearly Rs 2,500 per maund since the inception of the new season. At one time, new crop lint price had even gone down to Rs 6,000 per maund because of some rain damage.
Official quarters are very hopeful to achieve the new crop (July 2011 August 2012) output target of 15 million domestic size bales during the season which should cover the domestic textile industries requirements from the home supply. Reports abound from the cotton belt in both Sindh and Punjab of the development of a very promising and wholesome new cotton crop.
On a more cautious note, we may deem the new crop (2011-2012) cotton crop output to range between 13.5 million to 14 million domestic size bales on an ex-gin basis. Against this projected output, Pakistani mills would need between 14 to 14.5 local size bales. Moreover, exporters could ship anywhere from one million to 1.5 million bales. Thus the domestic mills are likely to import between half a million to one million bales (170 kgs) of cotton.
Presently yarn movement from the mills is slow. Spinners add that their yarn parity with cotton prices can only be attained if lint prices are reasonably below Rs 6,000 per maund (37.32 kgs). Generally speaking, the seedcotton (kapas/phutti) prices for the new season (2011-2012) ranged from Rs 2,900 to Rs 3,000 per 40 kgs in Sindh as per quality, while the seedcotton prices in Punjab reportedly ranged from Rs 2,700 to Rs 2,800 per 40 kilogrammes on Thursday.
On Thursday, large scale riots, civil disturbances and political mayhem gripped Karachi, Pakistan's leading commercial and banking centre and the country's largest city. There appeared no knowing when the civil strife would die down as leading political contenders were indulging in a free-for-all contest in this ethnic torn city. In the evening, relative calm is said to have been restored. Therefore, all markets in Karachi, including the cotton market, were mostly if not totally closed.
In Sindh, 200 bales of cotton from Mirpurkhas sold at Rs 6,300 per maund, while 200 bales from Sahiwal and 400 bales from Khanewal in Punjab also sold at Rs 6,300 per maund. Another 200 bales from Burewala sold at Rs 6,350 per maund. Rates of cotton have also gone up due to relatively lesser arrival of seedcotton reported in some parts of the cotton belt. It may also be added here that besides the ginning factories being installed in the new cotton areas of Balochistan and Khyber Pakhtunkhwa provinces, about thirty ginning factories are being installed in Sindh and at least ten in the Punjab.
On the global economic and financial front, further bad news emanated from different corners of the world which are very depressing and dreadful. First and foremost, it is feared that between now and August 2011, the United States government may run out of money to continue and conduct its functions as it has already spent almost all the sum of US Dollars 14.3 trillions allowed to it by the American congress. This may not be the end of the world, but it is fearful enough to send jitters around the equity markets, investors, financial centres and other commercial and business organisations.
If the Moodys rating agency pulls down the American government triple A standing by a notch or two, it could send shock waves around the world concerning the current viability of the United States to meet its liabilities squarely. And that would not only be bad for America, it could disturb or even destroy whatever normalcy is left in the global financial interaction and monetary interplay. No wonder gold, the most trusted global safe haven, may burst its upwards ceiling to go ahead of United States dollars 1600 an ounce.
As if the predicaments of Greece, Portugal, Iceland and Ireland were not enough, it is feared that the contagion of national indebtedness may now travel to Italy or Belgium. If Italy is endangered, can France or the peripheral economies of the Eurozone be far behind.
As it is, the United Kingdom is already in extraordinary difficulty considering its mounting debts and a depressing economy. Some fears have also been expressed that a property bubble awaits bursting in Canada. Chinese inflation is getting out of bounds and its restrictive monetary policy is endeavouring to contain unwanted rise in property prices.
We thus see that the difficulties of the Eurozone countries are deepening, specially after Portugal and Ireland are financing instruments being relegated to Junk status. It is not simply the speculators who may be blamed for this unprecedented global economic malaise, but there are underlying political and social problems which the various governments are wont to ignore. With the Greek economic problem already eighteen months old, it appears that the economic and financial infirmity around the world is getting messier and moribund.
To a certain extent, provisional pumping of money may shore up sick economies, but mere dole and incessant bailouts may not do the trick. As socio-political power shifts to Asia, Australia or even Latin America, old time tools like genuine austerity, good governance, less reliance on financial infusions and more attention given to improve production, productivity and a working political and economic reciprocity are needed to rehabilitate and reinvigorate the shattered structure of the global economy.