Pakistan: Continued decline of cotton prices

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Cotton market has continued to decline since the beginning of the arrival of new crop (August 2015 / July 2016) and the tendency remains weak. Continued difficulties being faced by the Pakistan textile industry including imposition of multiple and multifarious unnecessary taxes, high cost of doing business compared to regional competitors and large pending return of receivables by the mills from the tax authorities are great hindrance to the domestic textile industry.

According to the All Pakistan Textile Mills Association (APTMA), high cost of doing business due to innovative taxes and various surcharges such as Debt Retirement Surcharge, GIDC on gas and infrastructure Development Surcharge, not being zero-rated against exports have led to 30 percent Pakistan decline in exports in quantitative terms. Though the Pakistan textile industry has immense potential to double its exports retrogressive government policies are responsible for the declining progress of the textile industry.

The poor performance of the domestic textile industry is adversely affecting the cotton economy as a whole resulting in poor returns to the cotton growers, decrease in foreign exchange earnings and increase in unemployment. Thus the Pakistani textile industry is suffering large losses and immense setback for which the entire country is suffering.

In the local market, new crop cotton (2015 / 2016) prices have declined by Rs 350 per maund (37.32 Kg) since the beginning of the month. Seed cotton prices in Sindh generally were said to have ranged from Rs 2300 to Rs 2350 per 40 Kgs, according to the quality. In the Punjab, new crop seed cotton prices reportedly ranged from Rs 2350 to Rs 2450 per 40 Kgs in a tepid market.

New crop lint prices were generally said to have ranged from Rs 4650 to Rs 4700 per maund (37.32 Kgs) in Sindh, while in the Punjab they reportedly ranged from Rs 4900 to Rs 5000 per maund. The incoming Eidul Fitr holidays will cut short cotton sales for almost one week. The interior minister has approved the summary indicating that Friday, Monday and Tuesday viz 17, 20 and 21 of July 2015 be declared as Eidul Fitr holidays for the federal government. It may be recalled that Saturday and Sunday ie 18 and 19 of July 2015 are already public holidays.

Cotton prices are generally weak in the global market. China and India are reported to be releasing cotton stocks accumulated over the years which policy is pressurising cotton prices. Brokers said that due to difficulties being faced by Pakistan mills, domestic cotton prices of new crop (2015) are also under pressure.

The new cotton crop in Pakistan (2015 / 2016) is being described as being satisfactory and presently the seed cotton arrivals are increasing. New crop quality in Pakistan is also presently being described as being good but yarn purchases are lacking. On the global economic and financial front, the recent Chinese conundrum has far bypassed any serious damage the Greek failure or default in payments has done to the world’s economic system. It is quite possible that the current Chinese financial imbroglio coupled with the real estate bubble may result in a Great Recession bypassing the one sustained during 1929.

Since the beginning of June 2015 it has been reported that a slide in the Chinese stocks values exceeds US dollars 3 trillions which has been recorded. Therefore, all eyes are now set in China. Massive amounts of savings and investment of Chinese investors appears to have been wiped out. It is surmised that borrowed money contributed to the recent Chinese boom on the Chinese bourses. While China has taken large strides over the past couple of decades to push up its economy to rank the second largest economy of the world, the recent rise in the Chinese stocks prices appear to have been a stock market bubble created over the last one year or so.

The Chinese investor is reported to have entered into a reverie of a make-belief world where the rise in equity price would be never-ending. Thus millions of investors from all walks of life in China are now shocked to see share prices tumble precipitously. Moreover, a wide scale investment phobia in China from cars, housing to consumer goods led to a sharp increase in production capacity, which is now increasingly becoming redundant while some of it is lying idle. Increasing global recession is also reducing export demand from other countries which were importing from China. As it is, global trade is facing a decline in its growth.

Basically speaking, leading banks in most countries must gear up to grapple the floundering economies everywhere. These days, banks in Western countries like the USA and Europe are themselves running helter skelter to fortify and strengthen their eroding structure. In China, the government hold on bank is tenuous and unstable. Worst still, government control on shadow banking in China is very weak and fragile.

Under these dire economic conditions in China and fear of further deterioration, shivers have gone down the spine of global investors on all the major bourses and stock markets who fear that a major set back to the world’s economy is in the offing. The entire global financial structure is also shook up as rarely seen before while the equity markets took a deep plunge at the middle of this week. With Greece already creating economic chaos in Europe, now the Chinese plunge in equity values has already created serious fears regarding the health of the global economy including sizeable fall in several commodities.

With the calamitous rout in Chinese equity prices, the emerging Asian economies also feared the forthcoming result of such deeply negative occurece. From South Korea to Thailand, Australia to Britain, Japan to America, India to Singapore, the Eurozone to Latin America, everywhere there was gloom. Moreover, the Organisation of Economic Co-operation and Development (OECD) has stated the United States, United Kingdom and the Chinese economies are showing fresh signs of weakening. The Eurozone is facing a “renewed headache from weak inflation.” Since the beginning of this year, the global economy is certainly drifting towards desperation.

– Brecorder

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