20000410

Cotton market looking for direction

S A Aziz Shah

KARACHI: The size of the cotton crop has now been finalised around 9.8 million bales. The periodical cotton statistics released by Pakistan Cotton Ginners Association (PCGA) placed total arrival of seed-cotton in ginneries up to March 31 2000 at 9.723 million bales (Punjab 7.582 million and Sindh 2.141 million) as against 7.194 million bales (Punjab 5.527 and Sindh 1.666 million bales) last year.

The increase is 35.16 percent. Domestic mills buying reported at 8.299 million bales as against 6.220 million bales last year. The increase is 33.42 percent. This season, a third buyer i.e., Trading Corporation of Pakistan (TCP) was introduced which procured 521,000 bales. The Cotton Crop Assessment Committee placed ex-gin production at 10.6 million bales, which are about 800,000 bales more than returned reports. This quantity of 800,000 bales is placed in account of undocumented production. The unsold stocks are reported at 668,748 bales against 970,659 bales last year.

The present unsold stocks may not suffice the local spinners and exporters till the arrival of new crop of which sowing has been delayed due to shortage of irrigation facilities. Latest reports indicate that availability position of water in canals has improved and concerted sowing is going on.

Let us hope we complete the sowing target easily. The recent hot weather pushing mercury to 42 in lower Sindh would whither the new emerging leaves of cotton plant. Reports from Central Punjab indicate that government has discouraged early sowing in Sahiwal, Chichawatni and Mian Channu areas on some technical grounds.

New Cotton policy, which was to be announced in the third week of March, has been delayed on some technical and administrative grounds. Reports from Islamabad indicate that the minister for commerce does not agree to the provisions of Ministry of Agriculture for minimum support price scheme for seed-cotton and lint cotton and also to the implementation of cotton grading and standardisation systems at ginning stage. In fact, the introduction of minimum support price is expedient in the interest of the cotton growers/ginners for ensure proper return to the growers. In addition, this would help in stabilisation of local cotton prices. In the running cotton season, monopolistic forces squeezed cotton market to such an extent that a huge amount of Rs 25 billion is reported to have been siphoned out from growers pocket to spinners pocket. The cotton grading and standardisation system which has already been tested and tried for many years, would on one hand improve the quality of our cotton lint cotton, standardise our cotton and help in documenting cotton production and disposal.

When all cotton players agree that quality of our ginned cotton does not come upto the international standards then why the implementation of cotton grading and standardisation system is not being executed. How we will export our cotton and textile products after implementation of International Quality Standards in the near future when we are reluctant in improving the quality of our lint and textile products. Does Ministry of Commerce have any better scheme for improving quality of our lint and textile products? Actually, the desire of the private sector behind this motive is not to allow any governmental agency to monitor, inspect and document their operational activities.

Domestic cotton prices have remained subdued due to lack of buying interest particularly from the spinners. Lower Sindh cotton is selling at Rs 1,600-1,700, Upper Sindh at 1,700-1,800 and Punjab at 1,800-1,950 per maund ex-gin without Sales Tax. This season local mills have purchased about 2 million bales more than last year. Many of the larger mill groups are reported to be over-covered and this position may oblige them to sell some of their cotton in local market. However, the local market may play both ways in the coming months.

New York Futures have been under selling pressure during the week ending 9th April. The prices were under:

May 2000 Contract July 2000 Contract

Week ending March, 24 61.91 63.26

Week ending March, 31 58.59 60.30

Week ending April, 07 56.29 58.34

On 6th April, N Y Futures touched the lowest at 55.51 (May) in 2-1/2 months. The running contract May settled at 55.72 losing cpts 72 and July at 57.60 shedding 74 cpts while on 7th instant, prices recovered over the board. Foreign reports indicate towards about-turn situation. During the last two weeks, there was heavy selling and now the market appears running out of sellers. Cotlook A and B indices have apparently not sympathised with the fall in N Y futures prices rather remained firm, A at 58.70 and B at 52.65 on 6th instant. African Franc Zone has very little cotton to offer from the running crop. Sales and shipments by the USA have been quite healthy. Reports indicate some bulk sales of Pakistan cotton in Thailand and Taiwan markets. Cotton inquiries from Bangladesh have been a matter of routine. Some sales have also been reported. Some delays in establishing L/Cs by Indonesian buyers have been reported.

TCP, instead of making final payments to the ginners based on final evaluation and weights of their cotton at TCP warehouses, is working on making another ad hoc payment to the level of Rs 1,400 per maund. Previously, TCP is reported to have spent about Rs 2.5 million on the overtime bill of its staff on the exercise of making final payments to the ginners. The final payments to ginners are already overdue by three/four months and how much time TCP would further require to do it no body knows, said a ginner. There may not be any explanation for this long undue delay except incompetence. TCP has so far sold 196,910 bales in exports through seven open tenders; first sale being the lowest one at US cents 40 lb while 5th Sale being the highest at US cents 50, sixth at 47.10 and seventh at 44.10. The average price is estimated around 45.

The eighth tender for 70,000 bales (Afzal 50,000 and Alaka 20,000) is due on 12th instant and foreign circles indicate the price level of 41/42. Although L/Cs for about 130,000 bales are reported to have been opened by the buyers, yet shipment of a poor quantity of 12,000 bales could be made so far. The first document was negotiated only on 6th instant after 18 days from the delivery of consignment to the shipping company.

The private sector exporters take three days to complete these jobs. There should be no reason for delay in shipment when goods are already ready for delivery. Delay costs TCP at the rate of Rs 4 per bales per day. Millions have already been lost and more would be lost if the position does not improve. The documentation work is very slow followed by shipping section. Working in Korangi Store is also slow. On average 300 bales per day are weighed and marked by TCP staff while 600-700 bales are done by private exporters.

The performance efficiency of TCP is less than half of the private sector. TCP has still to sell 325,000 bales. The chance of availing better prices in exports now appear almost lost while overhead expenses would increase due to their poor performance. TCP is asking the buyers for payment of carrying charges on delay in shipments. Most of the buyers do not appear to have unloaded their long position in view of drastic fall in NY futures.

The L/Cs have not been scrutinised in time and amendments were asked for very late. The validity of some of the L/Cs have already expired and extensions are being delayed. The working atmosphere in TCP appears to be handicapped by team spirit, dedication and proficiency because of combination of three types of workers. First those officers/staff-members probably residue of TCP's original establishment prior to golden handshake scheme, holding vacated higher positions on ad hoc basis, with no relevant experience, highly placed, paid and cared second those from PCSI hired on marginally higher payments and third those CEC's Ex-employees who have good experience but have been hired on only two months contract, are paid almost 50 percent of the last drawn salary, no other benefits, working hard beyond normal working hours reluctantly under economic pressure. Under these conditions/circumstances, it does appear difficult to foresee the result of this operation, which is of high national and economic importance.