KARACHI: PakistanΆs cotton price will stabilise as the demand picks up in the next two months, said Karachi Cotton AssociationΆs (KCA) Chairman Muhammad Atif Dada, brushing aside the need for governmentΆs intervention to support the market.
“There is no need for anyone to panic,” he told The News on Wednesday. “Our crop is not yet out of the woods. We are into July, which is not really the season for the arrival of the new cotton crop.”
Cotton rates tumbled to Rs5,800 per 37.324kg from a high of Rs13,000 earlier in the year on the expectation of increase in global output, forcing some traders to call for a government support price.
The Trading Corporation of Pakistan (TCP) has intervened three times in the last decade to support cotton price. The last was in 2007/08 when it bought 1.6 million bales at Rs3,200 per 37.324kg, 18.5 percent premium over market price prevailing at that time.
But the governmentΆs poor fiscal position with Rs364 billion already borrowed for commodity operations has made such an intervention difficult, TCP officials said.
The TCP might also face difficulty in securing new credit lines for any cotton purchase at subsidised price, the officials said.
Dada said that correction in price is overdue. “Let free market take its course. The KCA is completely against any intervention at this point of time.”
PakistanΆs cotton harvest is expected to touch 15.2 million bales, sufficient to meet this yearΆs demand and a record over the previous years.
A senior office-bearer of Pakistan Readymade Garment Manufacturers and Exporters Association (PRGMEA) Shahzad Saleem said that daily fall in price has scared the buyers who all want to strike the best deals.
“But we shouldnΆt live in any dreamland. Cotton and yarn prices will rebound after Ramazan,” he said. “Garment makers have not been able to lift the yarn at current low rates because of high finance cost. Hoarding is not feasible at high interest rates.”
He said that the textile makers are hesitant to buy raw materials because of bad experience in the last season when inventory was built up only to see it lose value later.
PakistanΆs yarn makers are expected to book $600 million in inventory loss for the April-May quarter after the price of cotton they carried plunged, according to Gohar Ejaz, Chairman, All Pakistan Textile Mills Association (APTMA).
Spinning companies, which use cotton to make yarn, have carryover inventories of 1.6 million bales, which were bought earlier this year at a higher price.
Poor security situation and a severe energy crisis badly impacted the productivity of the textile industry, which faces continuous shutdowns, on one pretext, or the other.
The countryΆs textile exports increased 35 percent to $13.8bn in 2010/11, mainly on the back of 90 percent rise in cotton price. But with cotton price down by half, textile exports could take a hit this year, industry officials said.
