20000313

Chaotic conditions feared in cotton, yarn markets

S A AZIZ SHAH

KARACHI: It has now become almost clear that the volume of 1999-2000 cotton crop would not touch the level of 10 million bales and would finish somewhere around 9.8 million bales. By the close of February, 2000, total arrival of seed-cotton was found equivalent to 9.627 million bales and further arrival of hardly 173,000 bales is expected to make the crop of 9.85 million bales.

The unsold stock which stood marginally above the level of one million bales would have come down around 800,000 bales. Currently, mills purchases have reached the level of 8.1 million bales, exporters are reported to have purchased 250,000 bales and are further buying against their export sales aggressively.

Trading Corporation of Pakistan (TCP) has already purchased 525,000 bales. Thus the total unsold stock now comes to 925,000 bales. However, about 200,000 bales have been imported and import of 100,000 bales is further expected. The net total export sales by private sector is said to be around 450,000 bales and further sales are going on aggressively.

If TCP make shipment of all its stocks and private sector of 475,000 bales then total shipments would reach the level of one million bales. On the basis of present ground realities, the overall cotton statistical position appears to be heading towards some chaotic situation.

This cotton season is considered very abnormal from marketing the point of view as fluctuations in prices of seed-cotton and lint cotton have been diagonally wide. Seed-cotton and lint cotton prices were marketed at Rs 375 and Rs 750 lowest in Sindh and at Rs 850 and Rs 2,050 highest (so far) in the Punjab respectively. In other words, lint cotton was sold at the price of seed-cotton. About 80 percent price fluctuation has been witnessed in seed-cotton and lint cotton prices in all the cotton areas. This is abnormally high.

The cotton growers/middlemen suffered heavy losses but those of Sindh the most. The ginners, specially of the Punjab were largely benefited from the present price hike. Although the government took notice of the situation in last September but the change of the government, inconsistency in procurement policies, frequent procedural changes and absence of professional/technical elements, marred the performance.

The most unfortunate aspect has been the distortion in pricing of some types of cotton. Unlike old practice, TCP discounted the procurement price of type 1414 (Upper Sindh K-68) at Rs 1,400 (Initially it was around Rs 1,365) and Nemis (Lower Sindh Niab-78) at Rs 1,268 per maund ex-gin against the price of Rs 1,500 for Afzal.

The Punjab type Adnas was priced at Rs 1,414 which is very low in quality and fibre properties when compared with Sindh type 1,414 and Nemis.

All the cotton players know that during this season also seed-cotton (equivalent to about 0.3 to 0.4 million bales) from lower Sindh was carried to the Punjab and its lint cotton was branded Afzal instead of Nemis. When TCP has based their purchases on grading system then why rates have been determined on the basis of varieties such as MNH-93, K-68 and Niab-78?

A few of the ginners operating their factories in Upper Sindh areas are reported to have managed to get price of their lint cotton on the basis of type Afzal. Is there any justification for this gross irregularity? Will TCP sell in the local or the exports markets Sindh cottons classified under type Nemis and type 1412 at lower prices than that of the Punjab type Adnas while it has procured Sindh cotton at prices lower than type Adnas? When TCP have not classified any cotton above type Afzal with staple 1-1/32" in local purchases then how it has sold type 1467 higher than type Afzal to the extent of more than 15 percent of their exports sales while majority of their export sales consist of staple cotton with longer staple of 1-1/16? Why cotton of same lot is classified in two different types by TCP; in lower type for purchase purpose and in higher type for export purpose?

TCP have reportedly purchased more than 25,000 bales of lint-cleaned cotton, mostly from Bahawalpur division and that cotton has been classified in types 1505. 1503 and 1467 for exports while in purchase they do not want to classify any cotton above type Afzal. Why TCP applies two different quality standards one lower for procurement and other higher for export? All these actions support the policy of discouragement to ginners for producing better quality cotton.

Shaikh Saeed, Chairman, Pakistan Cotton Ginners Association, appears dissatisfied with the working of TCP in relation with its performance in procurement of cotton from the ginners.

He has lot of complaints with the TCP and its understood to be meeting with the TCP chairman on Monday the 13th instant to sort out their problems. Export market has been in favour of the TCP and it has already made sale contracts of about 155,000 bales to different international merchants at handsome price but execution of contracts is far away.

Things are moving very slowly in stores and export documentation/shipment sections. Against the last tender of 70,000 bales (50,000 bales of Afzal and 20,000 bales of Alaka) opened on 8th instant, the highest bids received are only for small quantity of 10,000 bales (5,000 bales each type). The second highest bids are more than 5 percent lower than the first bid prices. The final decision in this tender is likely to be taken on Monday, the 13th instant.

All the spinners, particularly, those which covered most of their annual lint requirements aggressively up to December '99. The spinners bought good quality cotton at the lowest rate and are now selling yarn at highest price. The spinners squeezed the growers/ginners first and are now squeezing the weavers. The spinners are minting money. Taking advantage of the present boom in textile, specially in spinning, the sick and closed units resumed production and the operational ones are trying to utilise their full capacity.

This has led domestic cotton consumption go high to the level of 0.788 million bales in December 1999 from early monthly average of 0.7 million bales. Now, the seasonal domestic consumption of reporting and non-reporting mills may go up to 9.4 million bales during 1999-2000 season.

On the export front, prices have further improved in sympathy with increase in New York advice. On March 10, 2000, fresh ruling contract May settled at 63.60 registering an increase of 59 cpts while the nearby contract July finished improved by 69 cpts at 64.80. The A-index improved to 57.10 (Pak type 1503 quoted at 55.50) while B-index to 53.85 (Pak Afzal at 51.75). The production figures have been reduced by 50,000 bales in the US 200,000 bales in India and 150,000 bales in Turkmenistan while in Brazil it has increased by 300,000 bales.

The strong demand of cotton is emanating from many Far and South Eastern countries like Bangladesh, Indonesia, Thailand, Korea and Taiwan.

The domestic consumption in Turkey, India, Pakistan, Mexico and China has appreciably increased. This season global cotton consumption is reported to be marginally higher than the production. World cotton stocks have been reduced and new crop arrival is eight months away.

China intend to reduce its planting next year and bring carry-over stocks into its consumption. The demand of lint cotton is also coming to some of the European countries like Italy, Belgium and Germany. Yarn prices in the international markets are strong enough to lend support to the international prices.

New York prices may find no resistance from the buyers up to 65 while selling resistance may be found below the level of 62. The high oil prices in the world markets have fuelled the cotton prices by improving economic activities in oil producing countries on the one hand and increasing competitiveness of cotton over MMF on the other hand.