Moderate activity on cotton market

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Business remains slow on the cotton market though some inquiries emerge now and then. Power shortages in the country, particularly in the Punjab, sizeable coverage of cotton already made by the domestic mills till the arrival of the new season (August 2013 – July 2014) and hopes that some new crop cotton may trickle in the end of June or early July 2013 have tempered cotton purchases to any large degree.

Textile brokers have added that yarn activity is also slow in the market. Impending changeover of government from the caretaker prime minister and his cabinet to the presumptive premier Nawaz Sharif is keeping trade and business in slow gear. There are reports in the market that new crop (August 2013 – July 2014) seedcotton (Phutti / Kapas) will start arriving in lower Sindh by the 15th of June 2013, which makes it a possibility that small quantities of lint cotton may start being pressed by the end of June or early July 2013.

Generally speaking, current crop (2012 / 2013) prices in both Sindh and Punjab are ranging from Rs 5,400 to Rs 6,400 per maund (37.32 kgs), according to the quality. In view of some inquiry and sales at midweek, the Karachi Cotton Association (KCA) raised the ex-gin price of grade three cotton by Rs 100 per maund (37.32 kgs) on last Wednesday (22nd May 2013) to Rs 6,400 per maund.

Therefore, generally speaking, the ready cotton has lost its sparkle with only an estimated 200,000 bales of cotton lying unsold with the ginners from the current season (2012 / 2013). In other news, the Karachi Cotton Association (KCA) criticised the introduction of International Cotton (ICOTTON) Futures Contract by the Pakistan Mercantile Exchange Limited (PMEX). The KCA has vehemently objected to this decision as the stakeholders, viz. the KCA, APTMA, PCGA, FAP, PCF have not been consulted in this regard.

KCA has observed that apparently the PMEX Futures Contract if based on the New York Cotton Futures Contract and is a cash settled contract where delivery of cotton is not envisaged. Strangely, the PMEX Cotton Futures Contract is not based on local cotton.

KCA has also pointed out that cotton surplus countries like Australia, Brazil and India have not yet introduced New York Futures Contract, how can PMEX take up this complex undertaking. In any case, the Federal Cabinet had already decided on the 24th of March 2005 to allow Hedge Trading of cotton under the aegis of KCA. The permission to allow PMEX to start Cotton Futures Contracts contradicts the earlier decision of the Federal Cabinet to allow the KCA to operate a Cotton Futures Contract.

Reports from Karachi added that KCA has complete experience in running a cotton Futures Contract together with the infrastructure, hundreds of experienced personnel, both cotton traders and brokers who can handle the operation of the Cotton Futures Contract competently and equitably and should thus be allowed to run cotton futures market.

On the global economic and financial front, bleak economic data from China and fears that the United States Federal Reserve might curtail its quantitative easing program sent shares values plunging from 1.2 percent to 7.3 percent around the globe. Global equity prices turned south on Thursday with certainty that the USA shares prices would follow suit.

Asian shares prices suffered sharp losses when the investors were taken aback on learning that Chinese economic data was worse than earlier envisaged and the pronouncements about liberal money supply of the Federal Reserve in the USA left equity holders in doubt. Investors feared that the Federal Reserve could cut its bond buying scheme at the approaching midyear.

The investors appeared visibly dismayed upon hearing of the contraction in the Chinese manufacturing sector. Fears of further slowdown in global economic growth erupted as contraction of Chinese economic activity was reported for the first time in seven months.

Thus the Shanghai share index was reported to have slid downwards by 1.2 percent, the Hang Seng conceded 2.5 percent while the Japanese Nikkei plunged by a reported 7.3 percent on Thursday. The trouble is that it is not only the sharp contraction which has shaken up the sundry investors, but also the fact that the Chinese economy remains decidedly fragile.

Thus the story is the same around the world concerning fears of a global economic setback, be it New York, London, Paris or Frankfurt. Many fear that global shares markets were overbought and thus vulnerable to settle down much lower or even crash. Call it a slide or a correction, this Thursday has made many investors jittery. Analysts have pointed out that China recorded its worst growth in 13 years during 2012. The many if not most of the world’s bourses are said to have reversed their recent rises in equity prices.

Reports from the Eurozone indicate that its services sector continued to contract in May. Thus unemployment in the Eurozone countries continues to rise fast but the untold millions unemployed in the peripheral countries in the Eurozone like Greece, Spain, Portugal and Italy is reaching alarming proportions. According to the International Monetary Fund (IMF), the United Kingdom is “a long way” from economic recovery.

Thus most of the equity markets in several countries were decidedly overheated and needed temperance. However, the central banks like the Federal Reserve, the European Central Bank and the Bank of England splashed large amounts of money into the market but it failed to encourage competitiveness or the desired type of investment. The money infusion has hitherto kept some of the credit markets ballooning giving rise to fears that a bubble is forming which may burst sending equity markets plunging fearfully.

SOurce: Brecorder

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