20000112

Bulls overcome bears in cotton market

S A AZIZ SHAH

KARACHI: The crop arrival figure of 8.2 millin bales (Sindh 1.8 and Punjab 6.4) up to December 31, 1999, agaist 6.1 million bales (Sindh 1.35 and Punjab 4.75) same period last year has encouraged bullish sentiments ÑÊan increase of 34.32 percent. If the same percentage is maintained till end of the season which appears doubtful, total crop would amount to 9.67 million bales.

During the second fornight of December arrival stood at 1.026 million bales, while it was 1.2 million bales in the first fortnight ÑÊa 14.5 percent shortfall. Import of cotton is around 150,000 bales of 480 lb each, equivalent of 192,000 local bales. But this is likely to to increase considerably.

As mentioned earlier consumption by domestic mills is likely to be nine million bales plus. The private sector exporters have so far sold about 350,000 bales and export sales are going unabated. The Trading Corporation of Pakistan has already taken delivery of about 550,000 bales against contracted figure of 980,000 bales. The TCP also wants to enter into export market for which initially an export tender of 20,000 bales has been invited due for opening on January 14. This may be a test-case for further offerings. The spinners are aggressively covering their annual cotton requirements and have purchased 5.91 million bales up to December 31 as against 4.64 million bales same time last year. Thus spinners have purchased 1.27 million bales more than last year.

One exporter-spinner said that they would try to make maximum purchases even to cover their requirements of first quarter of next cotton season. He further said that perhaps cotton would not be available at this rate next year and the cost of carrying cotton would also be around Rs. 15 per maund per month for exporter-spinners which worked out to Rs. 90 for six months. The crop of 9.8 or even 10 million bales may not suffice the requirements of domestic spinners and the exporters jointly.

In the end of the season another crisis of different nature (scarcity of desired quality of cotton) is feared. The report of a crop not over 10 million bales is getting credence of more and more cotton players which has made the domestic prices go up even before Eid holidays despite expected dull business conditions. During the last week local market has picked up by Rs. 75-100 per maund. The benefit of expected increase in cotton prices would only accrue to those limited number of growers who are still holding seed-cotton, to a good number of ginners who hold unsold lint cotton stocks but loss in profit will be borne by the spinners while the exporters who had already held very little margin at the time of sale would be main losers.

Shipments made so far against foreign sales have been very small Ñ between 12-15 percent only. The private sector exporters are reported to have hardly covered one-third of their export sales and the balance two-third has to be covered, which may also firm up cotton prices and some of the exporters may find it game of loss. As such, some defaults in shipments are feared. On the other side, the foreign buyers finding the market in their favour would open L/Cs promptly and would ask for shipments from the exporters. Lint prices in lower Sindh have improved to Rs. 1,050-1,150, middle Sindh Rs. 1,100-1,200, upper Sindh Rs. 1,200-1,350 and Punjab up to Rs. 1,400 per maund ex-gin without sales tax.

The Trading Corporation of Pakistan, which had already stopped making further contracts beyond 980,000 bales, have also suspended accepting cotton bales against the balance contracts which have been extended up to January 15. Despatches to the TCP stores have also been suspended perhaps in view of Eid holidays. The TCP brought drastic changes in discount structure increasing it from Rs. 22 to Rs. 85 for Alaka and from Rs. 86 to Rs. 170 per maund for Adnas.

Now a new deveoopment in pricing system has been reported accordinig to which Adnas Punjab will get around Rs. 1,300 while that of Sindh will get, Rs.1,000. One type and two rates with a wide margin of Rs. 300.

This blunder is beyond comprehension of any cotton man. While fixing the rates for Sindh types like Nemis, Nadan, 1414 and 1412, great discrimination had been made in comparisoon with Punjab types like Afzal and Alaka and now again same blunder has been repeated in fixing two prices one for Sindh. Adans and another for Punjab Adnas.

This is perhaps a calculated conspiracy to distort the quarter century old lint pricing system, on the one hand, and to create, rather give, strength to the feelings of deprivation of Sindh growers and ginners, on the other.

The government should look into this gross injustice to cotton and to cotton players of Sindh and remove the mistakes.

As per terms of the contract TCP was supposed to make 80 percent payment on receipt of cotton bales in TCP stores within 2-3 working days but this matter has now been delayed for week. The working of CSD section which forwards bill-file of the ginneers to accounts department for payment has become a mess. No diary for receipt of bills date-wise is maintained to defeat the principle of first-come, first-served. Interested persons get their bill-files cleared and forwarded. If there is no person of the ginner to push the file it will not move for weeks.

There is no automatic system of moving the bill-files. Store receipts are lyiing on the tables haphazardly. The covering letter of the bill-file can be prepared in less than a minute as only a few details are incorporated but instead the concerned staff members want it filled only through typing which takes lot of time and is typed also by the typists and PAs of other departments. This may be only to delay the payment for obvious reasons.

If a payment of Rs. 5.0 million is held up for one week, the ginners loses Rs. 17,000 and in one month about Rs. 70,000. What one should do to get the payment at the earliest, everybody knows. The CSD manager, who signs these covering letters, reportedly remains busy in meetings and persons run from pillar to post to get his signature.

The officers concerned should look into this matter and streamline the work so as to make the file processing quite automatic and transparent.

The government is understood to have shown its inability for further funding the TCP for cotton procurement and has asked them to create their own funds through export of their cotton.

International cotton prices have improved earlier than expected. New York Futures have posted large gains and the running March 2000 contract is now close to the level of 54.

Market fundamentals for bullish trend are getting stronger. Ready prices have also firmed up by 2-3 US cents per lb in upland cotton. Even the prices of extra long staple cotton have firmed up.

There are indications of soem delay in movement or shortfall in the CIS crop. The merchants are reluctant in offering CIS cotton from Bunder Abbas freely for January 2000 and onward shipments. Alternatively, the merchants are still delaying covering of their short positions in CIS cotton.

With the advent of new year, a surge in demand of cotton, specially from South/Far Eastern countries, has been witnessed. India is still very prominent buyer of Pakistan cotton and it has acquired 50 percent share of total export sales of 350,000 bales. The four bulk sales amounting to 120,000 bales, supposed to be shipped through land-route via Wagah Border, are now understood to be shipped through sea-port of Karachi. The Indian buyers, who paid tight rate for Pakistan cotton, would be the gainers if they get the due shipments.