Reports from upcountry indicate favourable weather conditions in cotton areas of main cotton producing province of Punjab while in Sindh province, especially in lower and middle Sindh, standing water in cotton fields is continuing aggravating cotton situation.
It appears difficult to achieve revised production estimate of 2.5 million bales of Sindh province but Punjab province may easily yield a bumper cotton crop between 10.0 and 11.0 million bales. However, there have been reports of quality deterioration also in Punjab province due to rains and stray pest attack. Pakistan cotton crop is now estimated around 13.0 million local size bales in 2011-12 season. As regards quality of cotton, the daily cotton bargain rates speak loudly about its wide variation especially in grade, staple length and strength. Both spinning mill buyers and exporters appear equally worried about quality of cotton. As a business rule, rain damaged cotton should be ginned and pressed separately but the ginners mix it with sound cotton to produce a blend of mixture.
Complaints of mixed quality of cotton have been reported by the local and foreign buyers. On last Saturday (8th October-11), cotton bargains were reported at a rate difference of Rs 1000 from Rs 5,500 to 6,500 per maund ex-gin. In Punjab, cotton quality difference ranges up to Rs 500 while in Sindh it is around Rs7,00 per maund. One prominent exporter is quoting export price for average quality cotton to low grade cotton from US Cents 97 to 70 cents/lb CNF Chittagong. It appears that with the passage of time, quality of cotton would improve and price differentials would be narrowed down.
However, the buyers (Mills and exporters) appear quite skeptical about quality of cotton. Export registration of cotton sales is reported at 166,734 bales and shipments at 104,594 bales up to 7th October,11. About 2/3rd of the export sales have been shipped while 1/3rd remains unshipped. Reportedly exporters are negotiating quality and price of cotton with the buyer-importers in view of drop in lint quality. Some of the exporters had committed sales at lower rates around US Cetns 80.0 a pound but now the prices are higher and required quality is scare.
In 2010-11, Pakistan's total import is reported at 312,955 M/tons equivalent to 1.86 million bales of 170-Kg each. As per KCA's report dtd. 8th October-11, total domestic cotton consumption in 2010-11 is reported at 14.47 million bales (12.77 as mills consumption and 1.70 million bales as non-mills consumption). In 2011-12 season, trade circles estimate domestic cotton consumption around 13.5 million bales ie more than one million bales less than last year. Present economic, financial, industrial, law and order and political conditions are reported quite unsatisfactory which may force our mills to consume lesser cotton this season.
However, it is very encouraging for trade and industry that the Government of Pakistan has reduced 1.5 percent discount rate last week to bring it down to 12.0 percent whereas a couple of month ago, the discount rate was decreased by 0.5 percent. This would provide enough relief to the trade and industry especially the export sector. This favourable action of Government would especially help our exporters to compete in export prices with other competing exporters. The most important problem is smooth availability of power supply especially to export industries which the government should ensure for achieving export target of US $26.0 billions in year July, 11 -June,12. In the running year, per unit price of export commodities is expected to be lower as compared to last FY. As such, export target is feared to be mixed if extra efforts were not made to increase exports amount-quantity wise.
Local spinning mills do not appear in hurry to cover their seasonal cotton requirement as this would tend to increase cotton price which is against their interest. They know, the prices are likely to remain under selling pressure as and when seed-cotton arrivals remain high during next couple of fortnights. Generally, quality required by traditional buyers in Bangladesh and others in China and Indonesia is out T-1503, 35-36, G-5 and 30 GPT which is in scarcity. Local mills would like to pick up fine lots at rate higher than export parity and the exporters would be deprived of required quality purchases.
India is likely to harvest a bumper crop of 35.5 million 170-Kg bales, about 9 percent higher than last year's production. This season, India would comfortably spare 8 to 10 million bales for export. Traditionally, China, Bangladesh and Pakistan are main cotton buyers of India. Last season in 2010-11 season, India exported some 6.5 million bales of 170-Kg each. US and India will share more than 50 percent share of total global exports while including another three countries ie CIS, Australia and Brazil, total export of five countries would be around 85 percent of world total exports. Physical movement of cotton bales of India, US, CIS countries origin have in real sense not started as yet but in forward or future, sales have been made. As physical movement of cotton bales starts, the selling pressure may increase keeping the price below US Cents 90 level. The economic, business, financial and retail sale conditions particularly in major end-user countries and particularly in cotton consuming countries appear quite unsatisfactory which may reduce world cotton consumption and increase ending stocks.
The cotton exporters, importers, processors and end-users generally lost money, some of them heavily in view of cotton price turmoil which pushed cotton prices to abnormally record high level of US Cents 230 a pound in March,11. The world cotton trade and industry severely felt its burnt and most of them have not yet recovered to normalcy. The present non-business friendly conditions and impact of last season's abnormally high cotton prices are likely to paint depressed picture of cotton and textile economy in this season.