There’re several reasons behind weakness in cotton prices


Cotton prices which had risen by about Rs 300 per maund (37.32 Kgs) during the first half of this week conceded about Rs 100 per maund on Thursday displaying weakness in the market. Some quarters in the market attributed the weakness in the cotton market to payment problems being faced by the trade due to credit difficulties.

Others suggested that seedcotton arrivals which had decreased over the previous few days have now resumed to relatively increased levels. There is also the perception in the market that as and how this year’s crop (August 2012 – July 2013) hastens into maturity, the seedcotton arrivals should increase putting more pressure on both the growers and the ginners to sell their produce. Another section of the trade suggested that mills have withdrawn from cotton purchases and thus the market prices have eased.

Brokers said in Karachi that New York cotton futures prices (ICE) had slipped from 123 to 171 points on Thursday after the opening of the session and thus the cotton market was generally subdued. With the northern hemisphere cotton availability poised towards increasing availabilities and record carryovers computed for entirely into the current season (2012-2013), there appeared no hurry to caver cotton expeditiously. China’s cotton futures prices were reported to have gained more than one percent.

However, reports from China spoke of increase in yarn prices due to recovering demand from the downstream textile sector there. Yarn prices have turned remarkably tight both here and abroad to the relief and benefit of the textile sector. In the domestic market, the quality of Sindh cotton was said to be satisfactory, while the quality of Punjab cotton was also said to be improving. Weather continued to remain clear in the cotton belt and therefore the incoming crop should improve. Earlier, fears of presence of some mealy bug was reported from Sindh which had inclined some traders to believe that instead of ranging from an estimated cotton output of 14 to 15 million domestic size bales on an ex-gin basis during the current season (2012-2013), only about 13.5 to 14 million bales would be produced. With good sales of domestic yarns to China and elsewhere, Pakistani mills may be consuming from 14 to 14.5 million bales, the exporters may be shipping from a half to one million bales while domestic mills may import from one to 1.5 million bales.

The general price idea of seedcoton (Kapas/Phutti) in Sindh reportedly ranged from Rs 2500 to Rs 2600 per 40 Kgs, while in Punjab they are said to have ranged from Rs 2400 to Rs 2600 per 40 Kgs according to the quality. Lint prices on Thursday in Sindh reportedly ranged from Rs 5500 to Rs 5700 per maund (37.32 Kgs), while in the Punjab they are said to have ranged from Rs 5400 to Rs 5800 per maund according to the quality.

In ready sales on Thursday, 400 bales of cotton each from Shahdadpur and Tando Adam and 600 bales from Mirpurkhas all in Sindh sold at Rs 5500 per maund (37.32 Kgs), while 400 bales from Ranipur and 600 bales from Mehrabpur both are said to have been sold at Rs 5700 per maund.

On the global economic and financial front, inaction and muddle headedness are the key ingredients which continue to shape the world economy as leaders of different countries were speaking on different wave lengths. Take for instance the Eurozone, easily the most critical area where its policies can mar or make the economy. However, the bigwigs of the Eurozone are not talking in unison.

The International Monetary Fund (IMF) has told the European policy makers in no uncertain terms that they should put their act together to complement and co-ordinate their fiscal and financial dealings in a more meaningful way. The IMF remains dissatisfied with the steps taken by the European leaders till date and has stated that they may have been helpful in some respects but they remain inadequate. The IMF added that the euro area’s debt crisis threatens to engulf the entire world with financial instability and deepening recession which could paralyse the global economic framework.

The IMF has underscored the current socio-economic fragility of the Eurozone, which if not addressed forthwith, could lead to a “downward spiral of capital flight, break-up fears and economic decline”. Thus the IMF Chief Christine Lagarde has asked the European leaders to take more positive actions to stop the Eurozone economies slithering further. She added that the Eurozone economic weakness was also impacting the emerging markets hurting them materially. The risks to the global financial stability have increased over the past six months.

Spain’s credit rating has been downgraded by Standard and Poors practically relegating it to junk status. With unemployment rising above 25 percent, the Spanish economy is bound to shrink in 2013. How long can Spain, Greece, Portugal and the likes thereof live on charity and handouts from the other countries like Germany? Thus the pain in Spain is likely to grow.

In Greece, German Chancellor Frau Angela Merkel was hooted, abused and denounced where she visited this week for advocating austerity measures. However, the truth of the matter is that till now most of the peripheral economies of the Eurozone had till now enjoyed too many holidays, a lower regimen of work ethic and a lower input of efficiency which made them incompetitive with the likes of China, Brazil, Malaysia, Singapore, South Korea or Taiwan.

The American housing sector is said to have made a modicum of improvement following increased sales, but the overall economy appears to be improving at a snail’s pace, if at all. The employment market in the USA remains slack. Reports from Washington have indicated that the growth domestic product during the second quarter has been revised to a merger 1.3 percent per year.

A report from China this week said that besides an extended slowdown in China’s real estate business following tightening of credit, China’s struggling economic growth could reduce to 7.5 percent in the third quarter, the seventh consecutive slowdown as reported by a Reuter’s poll. Thus we still have to travel a long distance before we reach our destination, viz a plausible and healthy economic revival around the world.