20000306

Bullish export market lending support to domestic cotton prices

S A AZIZ SHAH

KARACHI: The size of cotton crop 1999-2000, now becomes evident from the latest cotton arrival figures released by the Pakistan Cotton Ginners' Association (PCGA). By the end of February, 2000, ginneries have received seed-cotton equivalent to 9.622 million bales (35 percent increase from last year) and final figures may not touch the level of 10.0 million bales ex-gin.

Domestic spinners have purchased 7.863 million bales (2 million bales higher than last year). Unsold stock has reduced to 1.028 million bales against 1.251 million bales of the corresponding period last year. The exporters are active in making export sales and are simultaneously covering their sales. Despite government's tall promises and high estimates, bumper cotton crop could not be harvested.

Since we produced a record high crop of 12.8 million bales in 1991-92, our subsequent annual productions have been below the level of 10.0 million bales. Average annual production of last eight years comes to 8.8 million bales. This has become quite clear that unless some revolutionary steps towards improving farm cultural practices, evolving promising seed varieties; improving quality of inputs such as fertilizer and pesticides, we cannot have a bumper crop.

For evolving potential seeds, we have to adopt new techologies of genetic engineering, bio-technology, hybridisation and nuclear seed which may guarantee a bumper cotton crop. The present tight statistical position is heading towards some abnormal situation.

All Pakistan Textile Mills Association (Aptma) are demanding release of the TCP cotton stocks to their members at reasonable prices. The mills have already imported about 200,000 bales of 480-lb each and are interested in more imports of at least 100,000 bales of high grade/ELS cottons.

The new cotton policy is almost ready. The government is understood to have incorporated the scheme of minimum support price of stabilise the local lint prices and ensure a fair return to cotton growers. Also the system of cotton grading and classification at ginning stage is being introduced from next cotton season which would bring overall improvement in quality of ginned cotton and standardise all lint cotton lots. The Vision 2005, in its recent meeting held last week in Lahore under the chairmanship of Tariq Sayeed Saigol, a prominent textile industrialist and chairman of Committee of Textile Policy, discussed different aspects of Pakistan cotton and ginning strategy with greater emphasis on cotton cultivation, handling practices, ginning, pricing and marketing but could not reach a consensus.

The growers stand, which previously advocated for a free trade now want free export, but not free import and also the intervention of government agency to support the local lint prices at a certain level. The spinners want free import and export and do not favour any intervention of the government. The exporters endorse the views of the spinners and also demand revival of cotton hedging system.

The prices of yarn in local market have shot up and the local weaving industry appear to be hard hit. The processing industries are also feeling the pinch of the hike in yarn prices. They are demanding either ban on export of yarn or at least 10 percent export duty to make cotton yarn available to the down-stream industry so that its export commitments are met. The most unfortunate aspect is that almost all sales of lint cotton and yarn in local market are made without any proper written contracts, which provides chances of evasion of taxes and duties. This season, too, many think that more than 1 million bales have escaped the net of the GST. The sale prices of cotton-waste, yarn-waste and cotton seed are under invoiced to save the GST. This season, huge profits have been earned in local cotton trading but in most cases of sales tax has not been paid at final rate. The government should make it mandatory for the parties concerned to make out a written contract duly signed by buyers and sellers of lint cotton and cotton yarn. The respective associations should prescribe proforma of sale purchase contract, keep record of all contracts and monitor its execution. All trade bodies associations should work out proper monitoring system and implement it for checking/curbing defaults in working of the trade.

Local lint prices have gained strength from surging international cotton prices. Lower Sindh cotton was selling around Rs 1600-1700. Upper Sindh around 1800-1900, while Punjab cotton at 1850-1950, per maund ex-gin without sales tax. Local spinners are not happy over this price hike and resist it. The exporters are covering their recent foreign sales of high prices at high rates. Most of the South Eastern countries are demanding Pakistani cotton, but Bangladeshi more strongly. Afzal 1.1.16 is selling around US cents 48-50, Types 1467 and 1503, at premia of US cents 2 and 4 per lb respectively over Afzal price on FOB basis. New York cotton prices have stage recovery crossing the level of 60 cents. Ready prices are also firm and A & B indices have appreciably improved. Still there is a good demand of raw cotton but inventory is short till new crop arrivals from countries in Northern Hemisphere like Australia. Indian cotton merchants/spinners appear to be critical of the decision of their government to ban import of lint cotton from Pakistan on phytosanitory grounds. Reports of arrival of Pakistan cotton in India through Bangladesh have also surfaced up. Some of the Indian merchants, who had earlier bought from Pakistan but were not shipped due to ban on imports by India, are reportedly consulting legal experts to go to Liverpool Cotton Association for arbitration and one has already done it.

The Trading Corporation of Pakistan have already received Letter of Credits of about 125,000 bales against its total export sales of 150,000 bales while another sale offer of 70,000 bales through tenders is due on March 8 2000. The working in the TCP stores is reported to be slow due to deployment of some untrained workers and labourers, under-staffing, non-utilisation of more than 66 percent operational capacity of mechanical lifters for want of necessary repairs and spares, lack of motivation in workers being on two months contract, delay in payment of wages to labour contractor, deduction of income tax from the payments to labour contractor and contract employees, absence of team spirit and understanding for being from different organisations like the TCP, CEC & PCSI, lack of proper communication between stores and head office, and lack of effective monitoring and guidance system from TCP Head office. Evaluation of cotton and weighing of lots have been delayed by months and so the payments of balance of 20 percent to the ginners which was to be paid within one month's time as per contract terms. All these lapses and delays may be excusable on local front, but on export front cannot be tolerated as it would delay the shipments of cotton. TCP Commercial Director Samad Khan who was very instrumental in the TCP procurement/stores operations, is reported to have retired on March 3. Making contracts for purchase and sales is very simple, but its successful execution is difficult. The TCP should take immediate steps to streamline the working of stores by removing all bottlenecks/hurdles so that it can meet its export and shipment obligations/targets in time.