Sharp fall in output confronts the cotton economy

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Originally when the current cotton season (August 2015 / July 2016) started in Pakistan, traders and sundry analysts and observers projected a record cotton output of nearly 15 million bales (155 Kgs). However, that projection will be missed by a wide margin. According to traders in Karachi, a toxic mixture of poor cottonseeds supply for sowing purpose, inclement weather and consequent pest attacks have possibly decreased this year’s cotton production by nearly four to five million bales (155 Kgs).

Thus the cotton output for Pakistan for the current season (2015 / 2016) may be between 10 to 10.5 million bales (155 Kgs) while the textile mills are projecting their consumption between 14 and 14.5 million bales. Imports of cotton this season may range from 2.5 to 3 million bales, while the exporters may ship anywhere from 300,000 to 350,000 bales.

In the meantime, the local textile industry is not doing well. Indeed the yarn prices are said to be hardly remunerative. In fact the manufacture and sale of yarns and other textiles continue to remain a very losing proposition. According to the cotton arrivals report of the Pakistan Cotton Ginners Association (PCGA) showing seed cotton (Kapas/Phutti) arrivals for the current season (2015 / 2016) in Pakistan till the 1st of December, 2015, at 8,631,933 lint equivalent bales (155 Kgs) compared to 12,145,705 bales received for this period during the last season (2014 / 2015), or a decrease of 28.93 percent. Domestic mills have picked up 6,289,826 bales. An unsold quantity of 1,989,708 bales is lying with the ginners in both pressed and loose form.

Seed cotton (Kapas / Phutti) prices in Sindh are said to have ranged from Rs 2200 to Rs 2800 per 40 Kgs, according to the quality. Seedcotton prices in the Punjab reportedly ranged from Rs 2200 to Rs 3000 per 40 Kgs on Thursday. Lint prices in Sindh are said to have ranged from Rs 4700 to rs.5600 per maund (37.32 Kgs), according to the quality, while in the Punjab they reportedly ranged from Rs 4800 to rs.5600 per maund, according to the quality.

In ready cotton sales reported on Thursday, 1000 bales of cotton from Khairpur in Sindh reportedly sold at Rs 5425 per maund (37.32 Kgs) in a steady market. In the Punajb, 2000 bales from Multan were said to have been sold at Rs 5200 per maund, while 600 bales from Fort Abbas reportedly sold at Rs 5300 to Rs 5350 per maund in a steady market. Business turnover was nominal as sales of cotton were moving slowly.

According to the cotton consultant Naseem Usman in Karachi, the domestic textile industry is very disturbed due to the very low cotton output of the cotton season (2015/2016). Low output of cotton this year will also hit the national economy in a big way which will thus suffer large losses. A short cotton crop will also adversely affect the foreign exchange earnings of the country due to the problems of the textile industry which will have to import large quantities of cotton. According to Naseem Usman, nearly 2.5 million bales will have to be imported this year which will cost several millions of dollars. Last year’s cotton output in Pakistan was almost 15 million bales which constituted a record crop.

On the global economic and financial front, most if not many indicators are pointing to a large decline in performance while some reports are wont to compare the current situation of the global economy to be not much different than the fiasco we remember as the Great Recession of 2008/2009. So many negative economic indicators in the United States obtaining presently is a sure sign of not only the ill health of the American economy, but also the havoc it will play on the global economy.

For the American economy, the bylines are all the same viz a recession looming large in the United States. Contraction in US manufacturing has occurred recently. Indeed the majority of the business bosses in America have slashed their programmes to spend more on investment in 2016. Indeed there are also reports that the heavy taxation code in the United States is responsible for several investors in America to shift their investments abroad, ie to Europe, Far East and even South Asia in some cases. The idea of shifting investment from America to some other countries is said to be due to the reportedly discouraging tax code there.

Thus the fall in many economic indicators in the United Sates is indeed disturbing. A large sum of bad debt in America is also reported to have piled up. Moreover, bad consumer sales reported recently is also quite discouraging. Thus the probability of the United Sates entering into a recession next year (2016) seems very likely. In China, the manufacturing activity has worsened according to recent reports and has hit a three year low level. According to an analysis of Citibank reported by Reuters from London, China has become “the first major emerging market to slash interest rates to zero. “Furthermore, fears of continuing deflation and risks of the downside movement of the economy are said to likely to press the Chinese authorities to loosen fiscal policy.

China has recently come of age in the financial circles when the International Monetary Fund (IMF) admitted the Yuan (Renminbi) to the elite club by adding it to its Special Drawing Rights (SDR) basket of currencies that make up its lending reserve. Existing currencies in the SDR include the US Dollar, Euro, British Pound and the Japanese yen.

The problems with the Eurozone economy are numerous. The third quarter economic growth in the Eurozone slowed down further to an anemic 0.3 percent compared to a pace of 0.4 percent in the previous quarter. In Germany, the largest economy of the Eurozone, the shoppers’ confidence dipped according to one survey due to worries connected with the poor performance of the overall European economy. As was expected, the European Central Bank (ECB) cut interest rates by ten basis points to minus 0.3 percent on Thursday (3 November, 2015) and reportedly extended its massive bond buying programme to prop up the Eurozone’s limping economy as announced by the ECB Chairman

Mario Draghi. Some sections of the financial sector believe that not enough stimulus has been provided to the economy. Other geopolitical reasons also compounded the difficulties of the pace of global recovery. Refugees continuing to pour in into Europe have become a major problem for the Continent. Also, an alarm has been sounded in Europe as increasing number of refugees keep pouring into Europe. Furthermore, rising fears have been expressed over the inexorable stamina being displayed by the ISIS in several parts of the world. Reports added that France, Germany, the United Kingdom and other countries around the world are gearing up to tackle and contain the ISIS monster. Thus the global economy can see no respite from ISIS in the foreseeable future.

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