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Pakistan : Cotton futures prices recede after rewriting history (November 13, 10)

Pakistan : Cotton futures prices recede after rewriting history

After a stellar performance when New York cotton futures prices (ICE) posted the highest price since the last one hundred and sixty years at US Cents 157.23 per pound, they slumped on Wednesday to calm down to lower levels. Domestic lint prices followed suit on Thursday to record a sizeable decrease ranging from Rs 500 to Rs 1,000 per maund (37.32 Kgs).

Being the first retractions after the historic rise in cotton prices over the previous several months, it remains to be seen if they will slide further or again resume their upward trajectory. The cotton market is likely to remain fairly volatile and uncertain for many more weeks or even months to come before settling down to some comfortable range of prices.

We must continue to look whether China retains an abiding appetite to gobble up more cotton, the effects of the flooding of United States dollar into the global commodity markets, and also whether India remains adamant in continuing to apply its estoppel on cotton export for more months to come. Moreover, global economic condition will also have to be watched as an economic restructuring on a universal scale is progressing which is bound to change the entire existing business balance around the globe.

The currency wars and the bid of most countries, one and all, to adopt competitive devaluation to increase their exports could easily destabilise the rudiments of any existing trade balance, which exists in global business structure. Such tectonic shifts, which may alter the existing economic faultiness, can bring about quite unexpected consequences, including trade restrictions, which may be adopted by many countries. In the face of these predicaments, cotton trade cannot remain an island to itself. Let us thus brace ourselves for a possible plethora of uncertainties though we may remain essentially clueless regarding the direction of the fibre markets for quite some time to come.

Ahead of the forthcoming Eid-ul-Azha holidays being celebrated on the 17th, 18th and 19th of this month (November 2010), domestic ginners felt restless resulting in major declines in both seedcotton (kapas / phutti) as well as lint prices. Downfall in New York cotton futures (ICE) on last Wednesday also accentuated the weakness in the domestic market.

Thus seedcotton (kapas / phutti) prices which had gone up by about Rs 600 per 40 kgs since the beginning of this month have fallen by nearly Rs 300 per 40 kilogrammes. Similarly, lint prices which had achieved the historic high level of about Rs 11,000 per maund (37.32 kgs) have fallen by about Rs 1,000 per maund today (Thursday). Trade circles added that yarn and textile prices are also showing a downward trend. Therefore, it is likely that due to uncertainty in the cotton futures market (ICE), prices of physical cottons are prone to fluctuate with large volatility.

The trade problems in Pakistan will be accentuated due to incoming holidays next week, which may practically result in actual closure and also muted business dealings for most of next week.

Thus seedcotton (kapas / phutti) prices on Thursday reportedly ranged from Rs 4,400 to Rs 4,500 per 40 kgs in Sindh, while in the Punjab they were also said to have also obtained between Rs 4,400 to Rs 4,500 per 40 kilogrammes. Only on last Wednesday, seedcotton prices in Sindh were said to have ranged from Rs 4,700 to Rs 4,800 per 40 kgs and in the Punjab from Rs 4,800 to Rs 5,000 per 40 kilogrammes.

Similarly, lint prices, which had gone up from Rs 8,500 to about Rs 11,000 per maund (37.32 kgs) since the beginning of this month, have fallen consequently. Sindh cotton prices which had reached historically high range between Rs 10,700 to Rs 10,800 per maund have fallen to range from Rs 9,500 to Rs 10,000 per maund. In the Punjab lint prices which had earlier touched the record range of Rs 10,900 to Rs 11,000 per maund also ranged lower from Rs 9,500 to Rs 10,000 per maund on Tuesday.

Market sources have indicated that this season (August 2010 - July 2011) cotton output on an ex-gin basis could range between 11.5 to twelve million domestic size bales. Of special mention are the reports in the media that spinners and textile millers have achieved outstanding profits during the first quarter of this year (July - March 2010). Several mills have made record profits and are likely to perform well, particularly those units, which carried ample cheaper quantities of cotton from the previous season till the beginning of this the calendar year.

It is projected that by the fifteenth of this month (November 15, 2010) total arrivals of seedcotton (Kapas/Phutti) from the current crop (2010-2011) will be about 8,000,000 bales of domestic size. From this quantity, Pakistani mills will have lifted nearly 6,400,000 bales while the exporters would have picked up approximately 300,000 bales. According to this calculus, ginners would be left with about 1,300,000 unsold bales of cotton by the middle of this month.

Ready sale of cotton till Thursday evening comprised of 1,000 bales from Shahdadpur in Sindh at Rs 9,500 to Rs 10,000 per maund (37.32 Kgs), 600 bales from Sanghar at Rs 9,700 per maund while 800 bales from Tando Adam were said to have been sold at Rs 9,800 to Rs 10,000 per maund. In the Punjab, 1,000 bales from Bahawalnagar reportedly sold at Rs 9,500 per maund while 1,000 bales from Burewalla were said to have been sold from Rs 9,500 to Rs 9,700 per maund.

Prices in the market were easy in the evening as ginners turned keen sellers of cotton and wanted to dispose off their stocks ahead of the extended holidays next week when no transport will be available as it would be hauling sacrificial animals from the village markets to the towns and cities around the country.

On the global economic and financial front, the ongoing G-20 meeting of leaders from the advanced and emerging markets in Soul is of significance. There are fears that upto now there appears to be no consensus between the delegates and probably there are as many views as there are attendees at the meeting. Apprehensions abound that with the ongoing race to conduct competitive devaluations in many countries, there could be currency wars in order for each country to export their products at cheaper prices.

There are also attendant fears that this behaviour of de facto devaluation of their currencies may soon lead to the erection of trade barriers which may bring down whatever remains of the global trading system. While China has already been accused by the United States of keeping the value the Yuan low, now the United States appears to be printing large quantities of dollars to attempt to boost exports by cheapening its currency. China, of course, has told the United States to improve its economic performance rather the blaming China for keeping a low value for its currency.

Besides the problems of currency devaluation and threats of protectionism, the persistent sovereign debt problem in several continues like the United Kingdom, France, Italy and the United States and more particularly Spain, Greece, Ireland and Portugal promises to derail the existing global system of trade and banking. The World Bank, President Zoellick has also advised that structural reforms are immensely needed in the developed countries to improve the banking system.

Furthermore, public protests against austerity measures continue from time to time such as those in Greece, Spain, Italy, France and now in the United Kingdom. Students in London were joined by an assortment of protestors against the increase in tuition fees and cuts in education funding. All these pending and indeed proliferating economic illnesses portend worst times to come which is likely to shatter the prevailing social and economic fabric around the globe.

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