LAHORE (October 22 2010): Global shortage of cotton, generally weaker value of the United States dollar over the past several months in comparison with a basket of leading currencies, bullish ferment in the commodities complex and aggressive hedge funds intrusion into the fiber futures have all aggregated to propel cotton prices to historically high levels.
Domestic lint market has never seen or heard of such inexorable rise in cotton prices since upland cottons started being cultivated here nearly a century ago from American seeds which were later hybridised and mutated locally. The positive performance of the United States cotton futures (ICE) prices has been nothing but scintillating and spectacular. In the evening at about 5:20Pm Pakistan Standard Time (PST), the ICE futures had reached a formidable US Cents 117.33 per pound for the key December, 2010 contract.
Last Friday saw cotton futures prices in New York to rise inexorably to US cents 118.50 per pound, the highest point since the American Civil War (1861-1865), only to retreat later to close at US Cents 109.87 per pound. It may recalled that the spot rate of cotton had risen to 190 cents per pound in 1864 and then later went down to 120 cents per pound in 1865 during the American Civil War. Long Staple Pima and Egyptian styles are, however, selling above two United States dollars per pound.
With these super-strong global cotton fundamentals, it was but obvious that domestic cotton prices would rise in tandem with the international fibre prices, following both the physical and the futures prices (ICE). Thus Pakistan cotton prices rose on Thursday to historic high levels for not only seedcotton (Kapas/Phutti) and lint, but also for other by-products like cottonseed (Binola/Kakra), cottonseed oil and khali (Oil Cake).
Thus on Thursday the seedcotton prices in Sindh reportedly ranged from Rs 3450 to Rs 3500 per 40 Kgs, and those in Punjab between Rs 3350 to Rs 3550 per 40 Kgs, the highest ever recorded. Cottonseed prices reportedly ruled at a record level of Rs 1100 per maund (37.32 Kgs), cottonseed oil prices also rose to a record price of Rs 4400 per maund, while the price of oil cake (Khali) also shot up to an unprecedented level of Rs 900 per maund.
Lint prices also remained very tight and ranged from an all time high of Rs 7700 to Rs 7800 per maund (37.32 Kgs) in Sindh, while in the Punjab they reportedly ranged between Rs 7650 to Rs 7800 per maund. Later in the evening, ginners from such Punjab stations like Rajanpur and Mianwali were asking Rs 8,000 per maund of their cotton in a strongly held market. With very positive and encouraging reports being received from the textile sector, prices of yarn and fabrics to finished goods and garments were said to have become exceptionally strong, particularly due to strong inquiries from China.
The present scenario in our market seems to suggest that there is a takeoff in the entire spectrum of the cotton economy from the field to the fabric including yarns, finished goods and garments. This situation should aid the growers, the ginners, the millers and the exporters across the board. Even the smaller factories and manufacturers of textile products are reported to be happy.
Cotton output during the current season (2010-2011) is estimated to be between 11.5 million (11,500,000) to twelve million (12,000,000) domestic size bales on an ex-gin basis, while mills consumption is being projected from 14.5 million (14,500,000) to fifteen million (15,000,000) bales. About three hundred thousand (300,000) to four hundred thousand (400,000) bales of cotton may be exported this season, while anywhere from 2.5 million (2,500,000) to three million (3,000,000) bales (170 Kgs) may be imported this year (August 2010- July 2011) to meet the shortfall. Import bookings of cotton reportedly ranged from 1.4 million (1,400,000) to 1.5 million (1,500,000) bales (170 Kgs) but their delivery / shipments remains a big question mark.
In the ready cotton market in Sindh, 400 bales of cotton each from Bhiria Road and Moro, 1,800 bales from Mirpurkhas, 2,000 bales each from Nawabshah and Tando Adam and 3,000 bales from Shahdadpur all sold at Rs 7,700 per maund (37.32 Kgs). Then 1,600 bales from the Khairpur District sold at Rs 7,750 per maund, while 1,000 bales from Upper Sindh (K-68) were said to have been sold at Rs 7.800 per maund.
Later in the night, seedcotton from Mianwali is said to have sold at new record price of Rs 3600 per 40 Kgs and lint price from the same station sold commensurately high at an unprecedented rate of Rs 7,900 per maund. In Punjab sales, 1,200 bales from Chichawatni sold at Rs 7,650 / Rs 7,700 per maund, while 1,000 bales from Burewalla and 1,200 bales from Khanewal sold at Rs 7,700 per maund. Daily arrivals of cotton in Pakistan are about 125,000 bales.
On the global economic and financial front, many if not most international issues of significance remain unattended. The banks working globally have not yet introduced new rules for their ethical performance, the currency alignments between various countries remain at the whims of their respective governments, poor nations are getting poorer, unemployment is increasing day by day, and environment issues remain unattended. To add to the global woes, there are continuing protests and angry demonstrations against the various governments from the populace as in Greece, Ireland, United Kingdom, Spain, Italy and above in France these days where workers are agitating against increase of retirement age from sixty to sixty-two years. France is nearly paralysed due to transport strikes depriving the much needed gasoline requirements of the citizens and the factories.
While the different governments in Europe and elsewhere are proposing to install strict measures of austerity to forestall any financial meltdown, public is resisting the same. Therefore, nothing seems to be improving on the socio-economic front except some of the equity and commodity markets, which could well be forming bubbles to burst in the not too distant future.
