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TCP emerging as profitable organisation

S A AZIZ SHAH

KARACHI: The circle of those cotton players who are assuring the size of cotton crop below 10 million bales is widening day-by-day. However, the amount of arrival of seed cotton in this month would largely help in assessing the size of cotton crop more accurately. One ginner circle expects the arrival of seed cotton equivalent of around 8.7/8.8 million bales by January 15, 2000. One old cotton merchant said that he feared cotton crop might not reach the level of 9.5 million bales.

The Spinners who mostly had advocated in favour of a bumper crop to keep the lint prices down, now appear to be accepting the idea of an average crop of not over 10 million bales. Annual domestic consumption is likely to go up in view of positive cotton consumption fundamentals.

Local consumption may go even around 10 million bales, one expert opined. On the basis of actual consumption in early months, the textile commissioner expect it around 9.2 million bales. One prominent and big textile mills in Landhi, Karachi which is reportedly equipped with 80,000 spindles in preparing re-start its spinning operation after the closure of many years.

Visualising the domestic and international crop position the spinners appear bent upon covering their cotton requirements extended up to November/December, 2000. The spinners fell that better grade cotton would become scare in domestic as well as international markets so they have started their inquiries for import of some suitable cotton.

The Trading Corporation of Pakistan have reportedly so far received about 630,000 bales against their contracts of 980,000 bales. With a view to generate funds for meeting their requirements, the TCP decided to sell in the first instance 20,000 bales in export sales through tenders. On 14th instant, the TCP received positive responses from 21 companies, some of them prominent. The government TCP is likely to make their decision in this regard soon.

However, an average rate of USC 37 lb fob for these 20,000 bales would be possible under present market conditions and this could be achieved by tactful negotiations with the concerned top three foreign participants in the tender. The All Pakistan Textile Mills Association, have showed their desire of purchasing entire cotton stocks of about 530,000 bales held by the Trading Corporation of Pakistan (TCP) at actual cost and expenses.

The Chairman of Pakistan Cotton Ginners Association asked the government not to stop TCP from exporting its cotton. If the local spinners want to purchase TCP cotton they can take part in open tender in competition with the foreign buyers and make payments in US dollar or pay 5 percent more as difference of official and private exchange rate on the basis of highest bid.

It appears that this season the old and experienced cotton exporters would be losers while new and inexperienced ones like the TCP would be the gainer. The TCP is holding a stock of 530,000 bales and further deliveries appear difficult under the present cotton situation as the fast dates of contracts also expired on January 15. On the basis of average fob price of its entire purchased stocks being US cents 40 and average sale price being 45, the gross profit works out to about US$ 10 million.

As a matter of fact, the ginners have gained more than the growers. Actually the ginners lost heavily last year and the growers lost heavily this season. Therefore, the expected of US$ 10 million equivalent of Rs 515 millions should be passed on to the growers in any form.

Local cotton prices have staged strong recovery and on last Saturday touched the level of Rs 1500. The ginners of upper Sindh and the upper Punjab who had sold their low grade cotton at below Rs 900 are now demanding above Rs 1,100. The bullish sentiments are against the general expectations of all cotton players who expected otherwise in the wake of Indian ban on cotton imports.

Even on 14th the exporters registered sale of 25,000 bales to India. There are reports that Indian spinners seem disturbed on the decision of their government to ban import of any cotton from Pakistan on phytosanitary considerations.

Of the total sale of 400,000 bales, Indian share goes to 300,000 bales of which hardly 30,000 bales were shipped to India. On the basis of US cents 4 increase in quotations of Pakistan cotton, loss to Indian buyers may go up to US$ 4.05 million on balance shipment of 270,000 bales. The Indian merchants/spinners want shipment of Pakistan cotton through third country but this may not be possible as certificate mentioning origin of cotton is issued by the exporting country. The issuance of fictitious certificate of origin would not be sufficient as special size of our cotton bales and quality of our cotton is distinctive.

Indian spinners are also showing interest in cottons of other growths, specially South Africa and West Africa. Some experts think that finally India may also find its crop short by 5 to 8 percent.

The Pakistani exporters are not likely to lose financially under present cotton situation. However, the Government of Pakistan is reported to have decided to challenge this illegal Indian action in World Trade Organisation court as the Indian allegation is likely to harm the reputation of our cotton in the world market.

New York cotton futures have been making modest increase in the last eight days and March contract has touched the level of 54.12 and May 56.25 other distant contracts are around the level of 60. As a matter of fact, the global cotton situation appear quite explosive in the coming months as global consumption would be higher than the production.

The reports of decrease in the production targets of China from 4.4 million tonnes to 3.83 (- 12.95 percent) USA from 4.017 to 3.640 (-9.38 percent) and Pakistan from 1.870 to 1.657 (- 11.39 percent) while similar reports are about India and CIS crops.

The advent of the new year heralds increase in economic activities, specially textile sector in the recouping economies of Far and South Eastern countries. The international merchants who had maintained short position throughout are now reducing it through aggressive buying. The report ICAC for a lesser production next year may be another bullish factor in cotton prices.