Cotton prices came under pressure this week in the domestic market due to several reasons. Mills are facing slow demand of yarn while cost of doing business has gone up. Particularly, the All Pakistan Textile Mills Association (APTMA) has sent an urgent message to the government and also published in the press that they are unable to pay the Gas Infrastructure Development Cess (GIDC) which will hurt the textile industry at large, but will result in total closure of units located in Sindh and Balochistan.
Therefore, the Pakistan textile industry is in bad shape, increase in gas rates and slow yarn sales are hurting the industry. Liquidity with the domestic industry is very tight. Many mills are said to be facing day to day payment crisis as some yarns are selling at lower rate on credit basis.
Thus this week cotton prices decreased by about Rs 100 per maund (37.32 Kgs) as exemplified by decrease in the ex-gin rate of grade there cotton which has been reduced to Rs 5400 per maund as mills are under pressure. Only about 100,000 to 125,000 bales of unsold cotton crop of the current season (2014 /2015) remains with the ginners. Even the global cotton prices are subdued due to decrease in demand.
The general price idea of lint from Sindh reportedly ranged lower from Rs 4800 to Rs 5500 per maund (37.32 Kgs), while in the Punjab the lint prices were said to have ranged from Rs 4800 to Rs 5500 per maund in a lackluster market. There were reports that sowing of the new cotton crop (August 2015 / July 2016) in Pakistan is good and small quantities of seedcotton arrivals may start in July 2015. Some forward sales of the new cotton crop from Punjab have also been reported.
Many mills are now buying cotton on credit. Some mills are also selling cotton to other mills. Moreover, there are sporadic reports that due to high cost of production some spinning unites have closed down partially. Moreover, a few spinning units have also closed down due to drop in yarn sales.
APTMA has conveyed to the government that Gas Infrastructure Development Cess (GIDC) Act 2015 is an anti-business initiative which will result in the closure of the export-oriented industry which is likely to create a disturbance of law and order in the country.
The chairman APTMA Sindh-Balochistan Region Tariq Saud added that the GIDC is a harsh measure which will not only burden the taxpayer, it will result in a complete closure of the export-oriented textile industries. Tariq Saud feared that GIDC will not only render the textile sector incompetitive but will also result in flight of capital from the country.
On the global economic and financial front, most of the countries including the U.S.A and Great Britain are blaming the poor performance of the respective economies on bad weather prevailing in the first quarter. In the meantime, the U.S.A Federal Reserve and other central banks in Europe, China, Japan and elsewhere generally continue to believe that somehow throwing good money after bad money would work miracles and pull out the depressed global economy from its persisting morass which started from the Great Recession of 2008.
There is no news to say that the American economy ground to a halt during the first quarter of 2015 ie the economy contracted during the first quarter. However, some observers believe that with any possible growth in the U.S. economy, however small, the Federal Reserve will raise borrowing costs to the investor, manufacturers and financial dealers. Here lies the dilemma. Be damned if you do, and be damned if you don’t. The question being asked is whether the increase in borrowing rate will increase the inflation and buck up the depressed American economy. There is continued speculation whether the Federal Reserve will increase the interest rate in June or postpone it till September 2015.
The other pain in the neck relating to the health of the global economy is Greece. While Greece itself professed all the confidence that it would come to terms will all its lenders by next Sunday, but that sounds improbable. Thereby hangs a sorrowful and elongated tale of Greek misfortunes of gargantuan proportions. Let us keep our fingers crossed and touch wood.
Another unexpected development concerns the massive bribery scandal in Fifa which has rocked the financial world coming head over heels after the recent charge against most of the leading global banks pertaining to the fixing of Libor rates. The Fifa scandal has rocked the business confidence everywhere.
In the meantime, Shanghai Composite share index in China reportedly plunged more the six percent on Thursday. The BBC has added that this fall in Chinese equity values is the largest fall since January 2015. Tightening of leading requirements on margin financing was said to be the cause in the fall of equity values. There were reports that many of the equity values were in red on the global bourses.