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Cotton market aggressively posting new gains

S A AZIZ SHAH

KARACHI: Different cotton production estimates in 1999-2000 season are now coming close to the level of 10 million bales. The Cotton Crop Assessment Committee has also as usual reduced their estimate by half a million bales placing it at 10.5 million bales ex-farm.

The latest crop movement figures indicate that during the first fortnight of January 2000, seed-cotton equivalent of 515,000 bales was received as against one million bales in the second fortnight of December 1999. Some people attribute this 50 percent decrease to Eid holidays, while other to short back-up.

Due to favourable yarn manufacturing situation, domestic spinning mills are likely to consume about 9.3 million bales this season. About 625,000 bales have been procured by the Trading Corporation of Pakistan, which are reportedly meant for export.

The private sector exporters have also registered with the Export Promotion Bureau export sale of 443,300 bales including 178,000 bales to India which has been cancelled at par due to banning of import of Pakistan cotton by India. Korea, Indonesia and Bangladesh are the main buyers of Pakistan cotton.

Local shippers have been benefited from the cancellation of bargains by India as cotton prices have jumped by Rs 200 per maund. Spinners are aggressive in buying and export inquiries are pouring in. This situation may lead cotton market to a tight statistical position.

Cotton prices have registered sharp increase recently on reports of tight statistical position and increased buying by local spinners. On January 22, the Karachi Cotton Association further enhanced their spot rates (Per maund ex-gin without sales tax) to Rs 1,325 for Niab-78, Rs 1,350 for K-68 and Rs 1,580 for MNH-93. Lower Sindh cotton is selling at Rs 1,300-1,400, upper Sindh at Rs 1,350-1,550 and Punjab Rs 1,400-1,600 per maund. There are reports of defaults in deliveries from ginners against low rate bargains.

The buying spree may create chaos in cotton market through uncertain conditions. The TCP is reported to have made adhoc payment of 80 percent to the ginners for 400,000 bales, while about 125,000 bales remain unpaid so far after one month although as per contractual terms the TCP was supposed to make payment with 48 hours of the receipt ofsupply in their stores.

The weighing of bales at the TCP stores have not yet started. The shortage found in weights would be disputed by the ginners on the ground of expiry of time period. The re-evaluation of cotton bales in TCP stores is very slow. One team is re-evaluating cotton bales for ascertaining the final type of cotton for finalisation of accounts, while the other one is evaluating cotton for export purpose.

This exercise appears to be futile. How the difference in two evaluations, if any, would be justified? The ginner would claim for the higher evaluation. For maintaining neutrality and competence, evaluations should be got done through professional and experienced cotton classifiers.

The export sales of 10,000 bales each of Afzal and 1467 both 1.1.16 through tenders have not been finalised on best bids. Reportedly, one UK-based merchant was offered 10,000 bales at 40 US cents per lb on FOB basis by the TCP, which was accepted, but the TCP again issued faxes on Friday to all the 21 participants of the tender to improve their bids or give fresh bids.

The buyer-merchant, who had accepted the TCP offer, appears annoyed with this action of TCP and may take any suitable course of action in this regard.

The TCP has also published a notice for pre-qualification of potential foreign buyers of Pakistan raw cotton in local papers. This is against the policy of open tenders. There is no justifications for restricting the tender only to registered foreign buyers. The TCP should understand that Pakistan does not have any monopoly in foreign sales and as such should avoid taking arbitrary decisions. The international norms and practices are to be honoured. A cotton merchant said that the spinners' lobby might be trying to single out foreign merchants from buying cotton so as to grab the TCP cotton at actual cost and expenses. To diffuse the explosive situation and restore the confidence of the foreign merchants a high degree of commercial approach and professionalism is required.

The New York futures on Friday last showed a reaction to increased lint values. March contract slipped down by 133 percent to settle at 56.16, touching the high level of 68.60 cents.

Over-buying situation has been reported by the brokers which led to profit-taking.

China, after remaining inactive for some time in export sales due to very low prices, has shown its desire to reactivate its export activities and unload up to 700,000 tonnes of lint cotton from old stocks. This improved market rates and energised inquiries have perhaps prompted China, to take this decision.

The international cotton market is likely to be influenced by the China factor but to what extent depends how effectively China exploits the situation.

The appear good shortage of higher grades of cotton in India. Staple-wise, productions has converged around 1.1.32. Indian growers now prefer to go for production of medium staple cotton from reasons of better yields. Also production of extra long staple cotton in India has been drastically reduced to 200,000 bales against 600,000 bales in previous year.

Indian spinners are very keen in procuring better grade and better staple cotton from different sources. Last year India imported 800,000 bales and this season the amount may be increased by 50 percent trade circles estimate.

Pakistan has been receiving inquiries from Indonesia, Bangladesh, Korea, Thailand and Taiwan at improved rates. Some foreign sales of Afzal 1.1.16 are reported to have been concluded around 42 CNF level.

As local cotton market is very strong the exporters are reluctant in accepting foreign bids. The merchants are watching the developments and are likely to take their position when direction of market becomes clear.

Yarn prices in domestic as well as in foreign markets have improved somewhat.