20000214

Local cotton market lose ground on

withdrawal of spinners' support

S A AZIZ SHAH

On February 7, the Cotton Crop Assessment Committee, finding better prospects for the running cotton crop increased their production assessment by 200,000 bales to 10.7 million bales ex-farm although majority of the opinions of the people connected with cotton place their estimates up to 10 million bales ex-gin. However, the amount of seed-cotton arrivals in the first fortnight of this month would give better idea of the size of crop.

Total arrival of seed-cotton at the ginneries by the close of January, was 9,244 million bales. The average of balance arrivals after the months of January for 18 years till 1998-99, has come to 8.28 percent and if we apply the same percentage, the total production comes to 10 million bales. In other way, if we assume an increase of 35 percent from last year, our crop size comes to 9.75 million bales.

Some of the ginners are still holding unsold stocks from 1998-99 crop. The All Pakistan Textile Mills Association have been trying hard to persuade the government/Trading Corporation of Pakistan (TCP) to sell their cotton stocks to them at price to be agreed upon but in vain. The commerce minister is also reported to have turned down the offer of APTMA. Some of the leading groups of spinners who had been active in buying lint till recently, have withdrawn their support to cotton buying resulting in softening of lint prices up to Rs 100 per maund. The ginners in the Punjab are buying seed-cotton from lower middle Sindh and daily about 70-100 truck-loads of seed-cotton was moving to the Punjab, one cotton brokers said.

Lint prices in domestic market have declined by up to Rs 200 per maund in one week's time. Better grade cotton of Bahawalpur area which was selling around Rs 1,950 a week back is now offered around Rs 1,750. The reasons are withdrawal of prominent spinners groups from the market, report of increased production estimates by Crop Assessment Committee and foreign inquiries at reduced prices.

The exporters who had not covered their foreign sales are waiting for the market to come down to their export sales parity following which speed of shipments has slowed down. The matter of submission of cotton grading certificate from Pakistan Cotton Standards Institute at the time of raw cotton shipment which was suspended by the Ministry of Commerce, Islamabad till June 30, 1999, has been re-introduced recently by Customs authorities after a lapse of more than seven months. Why this was not re-introduced from July 1, 99, has to been explained by the Customs authorities, an insider said.

This has led the PCSI lose about Rs 1 million as testing fee on the export of 100,000 bales. The Karachi Cotton Association is reportedly approaching the concerned department for getting exemption from the grading certificate till new cotton season on the plea of delay in shipments. As a matter of fact, the grading and classing system should be introduced at the ginning stage as per provisions of the proposed Cotton Standardisation Act but the vested interests are avoiding its implementation on one or the other reason.

If this is not introduced at ginning stage then at least it should be introduced at shipment stage as is prevalent in other countries. Every cotton player admits that lot of improvement is required in quality of our ginning and ginned cotton but appears hesitant in implementation of the scheme of cotton grading and classification.

The government should promulgate the necessary ordinance to introduce the cotton standardisation system at the ginning stage from the next cotton season.

The idea of Price Stabilisation Fund is reported to have been dropped on the persuasion of the World Bank. The domestic mills consumption is also stated to be around 9.4 million bales this season.

Although exports of textile products have increased by 10.51 percent during June, 99-Jan, 2000 period, Pakistan's trade deficit has widened to US$1.013 billion. However, the exports of towel has declined by 10.25 percent during first seven months of this financial year. Local yarn prices are steady to firm. The spinners have covered their requirements of raw cotton even beyond one year period and still want to purchase cotton from the TCP at comparatively cheaper rates, while the spinners are not ready to offer any sort of concession in price to the weavers.

Buying cheap cotton and selling yarn at higher rates is the policy of the spinners. Trading Corporation of Pakistan is processing the export orders of about 34,000 bales. One buyer of 10,000 bales is reported to have opened the letter of credit while other LCs are reportedly in the process.

Third tender for sale of 50,000 bales is scheduled to open on 16th with the price validity period till 18th. The international market is steady to firm and it is hoped that the TCP cotton would fetch better price. The representatives of some of the prominent international merchants are reported to be reaching Pakistan to have on the spot knowledge of the TCP working procedure in relation to its export sales.

On 10th New York Future registered robust increase of cpts 174 in March and 192 in March and May contracts to finish at 57.54 and 59.59 respectively. Export inquiries are strong and some sales of T-1467 staple 1.1.16 have been reported around 43.44 level fob Karachi basis. Type 1502 staple 1.3.32 has been sold around 49 lb CNF Indonesia.

The private exporters are hesitating to negotiate the bids in view of high local lint prices. If the prices come down to the level of Rs 1,500/1,600 per maund ex-gin and the international prices also lend support, the export sales would be geared up. However, strong statistical position would not permit the private exporters to freely sell their cotton in exports.