China's buying playing pivotal role in determining cotton prices; Pakistan hopes pinned to import from India

SHAFI AHMAD SYED KARACHI (November 22, 2010) : Cotton price has been soaring on the market owing to damage by flood and in hope that world economy is fast coming up. China's consumers are looking for more yet, Pakistan textile exporters were relaxed when reports came from India that country will open talks for exports.

WORLD SCENARIO:

The cotton futures sustained rise for some weeks will lose heat or otherwise major players had no meeting ground and differed. As it is apparently China's emerging role in keeping cotton unwavering seemed to many. China showed a global recovery. How long was the question as this country stood adamantly to safeguard sanctity of its currency. Grains from outside markets offered support. Japan's economic growth, along China will propel prospect due to persisting demand, analysts were firm in their belief.

The US stimulus plan to buy 600 billion treasury bonds was aimed at supporting oil demand. The past week its cotton subsidies a planned action to isolate the US and providing hope for optimistic and calculated return to grow cotton was seen to build up stand to linger on. The reference is regarding African poorest countries like Benin, Burkina Faso, Chad and Mali produce cheapest cotton for exports nearly four percent. India's latest stiffness and open talk with Pakistan to release cotton at agreed price was heartening. But on domestic front Pakistan textile exporters are gradually surrendering and talking bulk of export orders will go waste.

On Monday the US cotton futures finished marginally higher to end a three-day losing streak as trade and suspected mill buying wiped out initial losses.

The US cotton market rallied last week to an all-time high, but the threat of monetary tightening by No 1 consumer China deflated fibre contracts on Thursday and Friday. Benchmark March cotton on ICE Futures US rose 0.02 cent to $1.342 per lb on Monday, having moved from $1.3499 to $1.2838 - the lowest for the second-position contract in 12 days. Volume traded in US cotton reached almost 45,400 lots, about a quarter above the 30-day average of 34,200 lots, preliminary Thomson Reuter's data showed.

On Tuesday the US cotton futures fell on speculative sales and switch pressure after an early boost provided by firm cotton values in No 1 consumer China petered. The market remained wary of any hint that China may tighten monetary policy, as prices appear to be consolidating following their correction from an all-time high hit last week. The benchmark March cotton contract on ICE Futures US fell 2.04 cents to trade at $1.3216 per lb, moving from $1.3043 to $1.3820. Spot December lost 2.14 to $1.3661. The December cotton contract goes into delivery next week.

In China, the Zhengzhou Commodity Exchange's May cotton contract last traded Tuesday at 28,330 yuan per tonne, up 440 yuan on the day.

On Wednesday the US cotton futures ended near a 3-week low on investor sales sparked by news No 1 consumer China said it would fight what it calls illegal price increases in markets like cotton. Cotton prices surged to their loftiest since the US Civil War in the 19th century, but has since lost nearly 20 percent in value in a sell-off in the commodity sector. The benchmark March cotton contract on ICE Futures US fell 5.05 cents to close at $1.2415 per lb, its lowest settlement in almost three weeks. Volume traded was at 36,119 lots at 2:33 pm EST (1919 GMT), just under 2 percent below the 30-day average at 36,808 lots, Thomson Reuters preliminary data showed.

On Thursday the US cotton futures rebounded after sinking previously to a 3-week low on speculative buying as news of a deal for debt-wracked Ireland weakened the dollar and gave the market a boost, brokers said.

Prices of cotton were hit hard by fears China may take stern action to curb inflation running at a 25-month high by increasing interest rates or capping domestic prices with measures that would crimp commodity demand or drain liquidity from domestic markets.

The benchmark March cotton contract on ICE Futures US rose 4.85 cents to trade at $1.29 per lb, near the top of its $1.2338 to $1.2915 band.

On Friday the US cotton futures ended down by their daily limit on Friday after another move by China to slow its economy led to further liquidation before the weekend, brokers said. The benchmark March cotton contract on ICE Futures US closed down 6.00 cents, or 4.65 percent, at $1.2315 per lb.

TEX UNITS REMAIN CLOSED:

The textile processing and printing mills, sizing units and foundries meaning the entire process involved in producing exportable textile products had to be closed down. The admonishment could have less severe if as agreed by federal minister for one-day gas shedding for industries across the board.

Besides the outright closure declared by the government, the sufferers alleged that the low gas pressure is damaging the imported state of art valuable machinery of textile processing industry, which has created plethora of problems for industrialists, while textile industry, which is major contributor to the exchequer is gradually sinking.

The crisis this major sector of the country going down the drains beams signal for local and foreign investors to hold back. The result is evident: local money saved by neglecting taxes and other obligations is being deposited with foreign banks or residential places are bought, said knowledgeable circles adding that the constraint could be made less severe provided it would not be for passing on responsibility on someone else. Will authorities ponder for a moment and leave behind when they go every thing spick-and-span. The manifesto has to be done through for taking country out of donors' clutch.

FINNISH EXPORTS ARE FOUR TIMES HIGHER THAN PAK:

The write up main lines just above infuses in sensitive people across the world to ponder for making up any shortfall in country they live in. The headline seems just out of context. But it is. It penetrates deep into thinking Pakistanis whether potential God has blessed them with could have placed ahead of many like Finnish despite its miniature size. How aggressive it sounds as Osmo Lippomen, the Finnish envoy to Pakistan said with a mix of genuine pride that Finnish exports are four times higher than Pakistan although population of Pakistan is 25 times higher. Agriculture produce could feed the entire 18 million and produce wears for the people. But cotton and wheat and sugar Pakistanis have to import.

It is never given as to what amount is thus saved. Budget deficit is perennial, trade deficit is unending and IFCs are found missing hardly for a few months. The total exports stay around $8 billion or in close proximity while South Korea earns five times more from imported cotton, cotton yarn from Pakistan.

The envoy speaking about the major accomplishments of his country said Finland has been at the forefront of drafting international water and sea laws besides contributing towards resolution of environmental and human rights issues within the domain of European Union. The envoy said above in plane words without dwelling on what has dragged Pakistan to dire strait is corruption and absence of governance. Will indirect advice be of any use.

HIGH COST OF DOING BUSINESS PLUS:

That cost of doing business was hurting the exporters, particularly textile value-added products, who kept knocking doors of every relevant ministry and high ups to do away with the problem so that Pak goods entered foreign markets with acceptable edge. But except half hearted back up nothing concrete surfaced.

In the meantime with exception of an auspices opening that EU agreed to allow duty free imports from this country, power, gas and cash crunch plus law and order situation moved in the sector to add further constraint. There are problems, which need not necessarily money but supreme quality of give and take, not seen in efforts to dig out a possible solution of cotton yarn exports.

Even cotton cost under pressure of galloping price hike across borders was left over to the developing spectre. That growers of cotton should be paid to survive in a better way than they have been treated so far. Since growers differ from mere employed to grow on land of bigger landowners. Authorities should treat differently.

Small landholders and mere labourers need particular care to increase their standard of living. The fact, however, stands affirmed that country's place is nowhere in the comity of nations.

Coming back to subject, the expenses are too high - exporters need cash flow - but where it has to come from? Once some funds take shape, though supposed, to be returned are utilised somewhere against norms, is glaring practice!

GREATER ACCESS INTO US MARKETS:

May be with not that force being asked in this country since leadership here decided to extend hand of friendship towards the US adherents to democracy. The option was open, Soviet Union had already moved forward to extend helping hand to newly carved God gifted land called Pakistan. The history however, had to write developments differently. Just a mention of India, which shook hand with USSR stands proudly at the threshold of fast emerging country and Pakistan one is constrained to hear though in whispers is a failed state.

Today a US independent think tank with former Dy. Secy. of State and former national security advisor as chairman concluded that millions of Pakistanis could benefit from greater access to US markets for textile goods. For years Pak leadership has been calling for FTA, bilateral investment and trade not aid but nothing is in immediate view. The EU realised, late though and has been talking to allow Pakistan greater access shortly. But it is still shy of extending GSP-plus, available to all rivals of Pak exporters, probably there are some WTO related matter. The WTO has a number of objections more serious being subsidies to agriculture in the US and EU. But it is weaker country like Pakistan where world rules hold fast.

LOCAL TRADING:

The rising tempo, less for local, mainly because of foreign (China) influence China has been leading the cotton show. However, week under review saw spot rate slashed hugely by Rs 200 to Rs 8,300. As a matter of fact the knowledgeable circles in look out commented that world cotton rate is coming in the way which is unethical. Nearly 11000 bales of cotton changed hands, low lifting as usually buying is stretched upward.

The low quantity showed they have stocks enough to wait until they can press sellers to lower rate. The cotton changed hand was priced at Rs 8800 to Rs 9200. The phutti in Sindh and Punjab rose in line with lint value by Rs 500 to Rs 600 to Rs 4000 and Rs 4300. However, low sales also reflected non-availability of truck to carry bought cotton to mills' godowns.

On Tuesday the spot rate regained lost value Rs 200 only on Monday. The spot thus was noted at Rs 8500. If taken major world players in cotton the futures were soon to fluctuate either way with tone remaining firm. China is the largest producer of cotton and buys also millions of bales, particularly from India and America, being a major driver. The post-flood harvest of cotton in this country is being criticised, as wheat sowing is said to be delayed as a result.

On Saturday the Karachi Cotton Association left the spot rate unchanged at Rs 8500. In the meantime, seeds cotton prices in Sindh and Punjab were at Rs 3900-4000, they said. In ready business above 8000 bales changed hands at Rs 9000. According to the market sources, despite the slow arrival of phutti, there was buying interest from spinners indicating that prices may show firmness or go up in the coming days.

All out fall in cotton prices may be short-lived

S A AZIZ SHAH

KARACHI (November 22, 2010) : According to latest cotton arrival report of Pakistan Cotton Ginners' Association up dated as on 15th November, 10, total seed cotton arrivals are equivalent of 4.588 million bales in Punjab against 5.890 million bales same time last year, in Sindh 2.865 million bales against 3.371 million bales last year.

Total arrivals of seed cotton is 7.453 million bales against 9.261 arrived last year same time. Thus, this season's shortfall in cotton arrivals against last year comes to 14.91 percent. Some of the ginners have shown reservation to the correctness of the arrival figures as these were collected in haste. One ginner said he suspected some manipulation in figures as he expected total arrivals around 7.7 million bales against reported arrival of 7.453 million bales. The downward trend in prices would force the suppliers to boost deliveries. Upper Sindh report indicates that some arrivals from some pocket areas have not yet started.

Reports from Bahawalpur area say that stocks of pressed bales are accumulating at platform which may force the ginners to lower cotton prices and on the other hand Phutti-suppliers appear reluctant on selling seed-cotton to ginning factories at rate below Rs 4,000 per 40Kgs which does not match with ruling lint cotton prices. Some field reports indicate crop between 11.0 and 11.5 million local weight bales against 12.7 million bales produced last year. Suppliers of seed-cotton have sensed the situation and would try to unload the burden of seed-cotton stocks at ginning factories sooner fearing further fall in cotton prices.

This season, the government released varieties of cottonseed purported to be genetically modified were sown in Punjab province, results of which did not come to the expectations. To increase production and productivity of cotton, most important component is of seed. India adopted GMO technology in 2000 AD and more than doubled its yield in 10 years period from 278 Kgs/Hectare to around 600 and production from 14.0 million bales of 170-Kg each to 35.7 million bales (As per Cotton Corporation of India) in 2010-11 season. Pakistan produced 10.7 million bales in 2000-2001 and is also estimating its production around 11.0 million local weight bales in 2010-2011 but our yield remained almost stagnant around 650 level.

However, in 2004-2005 season, Pakistan did achieve record high production of 14.3 million local weight bales. Just compare our performance in cotton with that of India. India has become second largest exporter of raw cotton in the world and Pakistan some time second some time third largest importer of raw cotton. Perhaps we have merged our culture with agri-culture and result is deterioration. Indian seed companies are asking Indian government to allow export of Bt cottonseed for sowing in Pakistan as its trials and experiments have been very successful in Pakistan specially in Sindh province of Pakistan which borders India.

Cotton prices in our local market touched historical high of Rs 11,000 per maund of 37.324 Kg ex-gin last week and is now quoted around Rs 8,500 per maund. Cotton futures in New York market ICE touched highest of the history at US Cents 157.23 / lb and on 18th November closed at 133.90. on the 18th instant. March, 11 contract closed at 129.15 against 139.18 last week. Reasons advanced for this free fall in prices is attributed to Chinese measures to curb inflation and Ireland's bailing out programme from financial crisis after Spain which was supported with loan of some US dollars 150 billions to bail-out its economy. These measures have strengthened US dollar currency position against other prominent currencies.

Another factor of this decline in prices of main commodities including cotton is of profit-taking. May be this phase of decrease in prices may prove short-lived while some other think the prices may go down to 110 level.

Indian report says that its 50,000 textile mills are protesting against high cotton yarn prices while its apparel and garment sector is demanding of the Government of India to put ban on export of raw cotton. The purpose of India's domestic spinning and value-added sectors is to make the raw material available to local industries at reasonable rates. In other words, domestic industries should be given preference of procurement of raw material over exports. India has exportable surplus of some over 7.0 million bales but have delayed cotton shipments to ease down cotton prices in domestic market while Pakistan, being deficient in cotton, is very liberal in exports of raw cotton. Pakistan may import some 3.0 million bales of 170-Kg each to meet its cotton sort-fall in production. On the other hand, Pakistan may export some 800,000 bales of raw cotton as some 400,000 bales have already been committed in exports. Pakistan's weaving / knitting industries and other value added sectors are protesting against low availability of raw material to these industries at very high rates and industrial units are closing down but the government is not taking any step to safe guard its local textile industry. India has to ship about 5.5 million bales already sold out. US has already committed 12.9 million 480-lb bales having in hand 3 to 3.5 million bales for sale but have shipped only as little as 2.4 million bales. Main buyers of US cotton are: China 4.215 million bales, Turkey 1.817, Mexico 1.331, Indonesia 0.796, Thailand 0.605, Brazil 0.519, Vietnam 0.484, Korea Repub. 0.461, Pakistan 0.352 and Bangladesh 0.315.

According to one foreign report, cotton consumption in developed countries is decreasing while its is increasing in developing countries. In the period 19981-99, developing countries' share in world cotton consumption was 78 percent which increased to over 80 percent after 2000 and is estimated around 94 percent by 2010. After World War II, cotton consumption in developing countries increased substantially mainly because of increase in cotton production in Developing countries and comparatively lower labour cost. In cost of yarn production, labour has 17 share, which increases as value addition increases. Element of labour cost is the highest in garment manufacturing. US was consuming 11.234 million bales (highest in US history) in 1997-98 which was 61.57 percent of its production but its consumption reduced to 3.5 million bales (less than 20 percent of its production) in 2010-11 season.

More and less, same is the position of other European countries. Cotton and textile leadership which West enjoyed for couple of centuries has returned to its original home - the East. In US, some mills can make profit even at US Cents 150 /lb lint cotton price but other mills have lower break-even price. One report says that some mills in US are understood of cutting their production capacity and convert their part of cotton stocks into cash, making good profits. The textile business has become so risky that the mill managers very frequently use calculators to know viability of textile business many times a day. China is concerned over increasing inflation in the country and is taking necessary measures to check it, which would ultimately block the rising trend in prices. The abnormal increase in prices will ultimately be reflected in the prices of end-use such as garments and home-use textile products after three months. Ultimately, the end-user will have to pay more for the product on one hand and the retailer will have to suffer from shrinkage of volume of retail business. Cotton trade people expect some reduction in cotton consumption mainly due to abnormally high prices of raw material, high cost of production and slow and reduced off-take.

World Cotton Supply and Distribution (Million 480-lb bales)

Textile daily wagers stage protest demonstration

KHALID ABBAS SAIF FAISALABAD (November 22, 2010) : Unemployed textile workers, most of them daily wagers, staged a protest demonstration against week-long closure of processing, dyeing, calendering, printing, hosieries, power looms, and chemical industries due to gas load shedding, and strongly demanded that the government should immediately solve the problems of the value-added textile industry.

At Chowk Clock Tower, hundreds of industrial workers and daily wagers staged a protest demonstration without upper clothes on Saturday night in winter seasons and strongly demanded that government should not kick at their hungry selves and should take step in favour of masses and not in favour of monopolistic groups. They raised slogans against the severe price hike of essential items and week-long closures of textile units. They also demanded immediate release of the labour leaders arrested under anti-terrorist law.

Addressing the demonstrators, Abdul Qayyum, central leader of Pakistan Labour Qaumi Movement, said that government rulers including PPP and PML (N) were protecting and projecting their wealth during last two decade, while labour class is subject of 'do more'.

He said the government should review its anti labour policies, and facilities be provided under human rights.

Talking to newsmen, Ajmal Farooq, acting regional chairman of All Pakistan Textile Processing Mills Association, said that due to anti-industrial policy, the textile chain is breaking and resultantly allied ancillary industry had also stopped their function.

He said that the sizing industry closed due to non-availability of gas and this sector is not in a position to provide sized yarn to the power loom industry. Closure of processing, calendering, finishing, dyeing and processing units due to gas load shedding and low pressure, huge stock of grey cloth had piled up in the factories, while power looms sector is not in a position to weave more cloth without yarn and shortage of working capital.

When production process stopped, how it can be possible to fulfil the foreign export contracts, he questioned. Ajmal urged the governing party to saving the drowning value-added textile industry, and gas load shedding schedule should be reviewed to one-day off in a week across the country.

RGST to yield negative impact on textile industry: PHMEA

RECORDER REPORT FAISALABAD (November 22, 2010) : Chaudhry Salamat Ali, Chairman, Pakistan Hosiery Manufacturers and Exporters Association (PHMEA - North Zone), has warned that the Reformed General Sales Tax (RGST) would yield negative impact over the worst crisis hit value-added textile industry.

Talking to newsmen, he declared RGST bill is most complicated than ongoing GST and urged the government not to impose RGST that is going to push this export-oriented and labour intensive value-added textile sector to the wall.

He said that the textile exporters have strong exceptions to the government for continuously ignoring the reservations of the exporters regarding the imposition of the RGST and zero rate facility will not be withdrawn. But it is fact the government had not yet cleared the out standing refund claims of billion rupees so far.

He said that the government is also holding up millions of exporters' money under export rebate which is at present around 1 percent. Now it seems impossible in the present state of functioning that FBR could smoothly release 15 percent of GST refunds. To meet this shortfall in working capital, textile exporter/entrepreneur would resort to bank for financing its export for which mark-up rate itself is on a parallel rise. Thus value-added textile sector would be lead to an ultimate collapse, which facing shortage and day by day growing bills of gas, electricity and basic raw material. This situation badly upset the doing business of value-added textile sector, he added.

Chaudhry Salamat Ali said that energy crisis plus gas shedding for four days in a week and shortage of raw materials including cotton yarn and polyester yarn are the hitting continuous process textile industry and directly threatening the competitiveness of national exports.

He said that the decision for gas shedding four days in a week would send a very negative signal to the foreign buyers. "Instead of coming up with some sort of relief package, the industry is being pushed to the wall. The gas curtailment or disconnection is tantamount to throttling the industry to death, he concluded.
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USDA Estimates
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2008-99 2009-10 2010-11
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Production 107.13 101.36 116.68
Consumption 109.94 117.74 120.77
Exports 30.07 35.54 38.07
Ending stocks 60.42 46.69 44.66
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Source ICAC release 1st.October,10.
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