Global slowdown of demand adversely affecting cotton, textile consumption

According to latest cotton arrival figures released by Pakistan Cotton Ginners' Association, seed-cotton equivalent of 9.65 million bales are reported to have reached ginning factories by the end of November-11 month against 8.357 million bales received same time last year ie 15.47 percent more than last year.
Sindh is at 2.11 million bales - 31.86 percent short and Punjab at 57.540 million bales- 43.29 percent excess from last year. Total unsold stocks are at 2.038 million bales against 1.081 million bales last year ie 88.53 percent excess. These figures go a long way to indicate that by the end of November-10, some 72 percent crop had arrived and we apply this percentage this year, we get a crop of 13.4 million bales in 2011-12 season.
Seed-cotton arrivals are only 15.47 percent more than last year but unsold stocks are 88.53 percent more than last year. On the 7th December,11, KCA's spot rate was Rs 5,380 per 40 Kg as against Rs 9,860 per 40 Kgs same date last year - increase is 45.44 percent. The trade circles estimate domestic mills consumption more or less equal to this season's production level. It does not mean that this season there would not be any import or export. Pakistan's imports may be around 1.0 million 170-Kg equivalent bales as in first three months period (August - October-11) total export was equivalent to 155,276 bales of 170-Kgs each. Cotton Export registration by the end of Octobet-11, was 347,735 bales of which over 45 percent has been shipped. During this cotton season, Pakistan's total export of raw cotton may be around 0.5 - 0.7 million bales.
Coming to the cotton prices, ostensibly cotton prices are very low as compared to last year. On New York Cotton Future Market, on the 6th December-11, the December-11 contract closed at US Cents 93.31 whereas on the same date last year it was at 141.92 (Decrease of 34.25 percent). On the 6th December, NY A-Index is US Cents 98.90 whereas on the same date last year it was 161.75 - down by 38.86 percent. The domestic and international factors do not appear supporting cotton prices in next couple of months so there may be chances of further decrease in cotton prices.
The drastic fall in cotton prices and increase in cotton production cost are feared to discourage cotton growers for cotton sowing next season. Cotton growers in China, India and Pakistan have started raising their voices against low cotton prices, which do not even cover their production cost. The result of this situation would be substantial decrease in cotton area in most of cotton producing countries. India cultivated cotton on record high area of 12.11 million hectares in 2011-12 against 11.14 last year, increase being about 9 percent. India is expecting an all-time bumper cotton crop of 35.6 million 170-Kg this season against 32.5 million bales last season- increase being 9.5 percent. India's domestic cotton consumption is stated around 28.0 million bales and expected export around 7.0-8.0 million bales. This season, there was increase in cotton area in most of the cotton producing countries as the growers were encouraged by the historically high cotton prices last year. There are reports of possible substantial decrease in cotton area next year as the cotton growers are feared losing heavily due to very low cotton prices.
The cotton sellers resist further fall in cotton prices in Pakistan's domestic market. Especially Sindh growers have lost heavily as their crop was intensively and extensively damaged by heavy rains and devastating floods in July-August months. Quality of seed-cotton and the resultant lint have also been badly damaged; seed-cotton was sold as low as Rs 1,500 per maund of 40 Kg ex-gin while lint cotton was sold as low as Rs 3,500 per maund of 37.324 Kg ex-gin. These rates are well below production cost. Due to this, Sindh has large unsold stocks of cotton to 33 percent of total arrivals whereas Punjab is holding as low as 17.33 percent of total arrivals. This season, stocks of unsold cotton are 2.04 million bales against 1.08 million bales same time last season - about 100 percent increase from last year.
This season, world cotton production is higher than its consumption by about 10.0 million 480-lb bales. Last year, spinning mills and textile mills paid highest prices of their raw materials but could not get matching price of their products which put them under heavy financial losses and most of them have not recovered from that shock as yet. Textile and clothing industries are struggling hard to come pout of that situation. This season, low cotton prices have squeezed profits of cotton growers are likely to put them in losses forcing them to curtail cotton area drastically next cotton season by diverting it to other comparatively profitable crops. Clothing and textile end using countries especially the European and North American countries are caught by Euro crisis and Sovereign debts which have drastically reduced purchasing power of the people and they are curtailing their Christmas and New Year retail purchases which have forced the manufacturing companies in China, India, Pakistan, Bangladesh and Vietnam to curtail their productions.
This global situation emanated from global recession effects in 2008 and have exposed the credibility of many banks, financial houses and sovereign governments of some EU countries and USA which require large funds to meet their budgetary deficits. Slowing down of commodities demands especially of textile and clothing are adversely affecting textile industries and economies. The situation of cotton and textile product prices appears bearish in next couple of months.