Total arrival has been reported as 4,737,492 bales this season against 6,258,569 last year - a shortfall is 24.30 percent. Textile mills purchased 2,865,408 bales this season against 4,352,544 bales in the same period last season. Last year, the Trading Corporation of Pakistan (TCP) procured 139,300 bales but it procured nothing in this season. This season, 1000 factories operated while last season 959 factories.
The hard fact is that this season the crop is short but there is wide difference of opinions on amount of shortfall. The government's initial official crop estimate of 15 million bales has been drastically reduced to 12.5 million bales in one stroke.
The government should fortnightly or monthly review the crop position and work out the latest crop estimates for the information and guidance of the concerned quarters. This would discourage the element of undue price speculation in cotton market.
Credible field reports still place cotton crop estimates around 13 million bales. Some of the very conservative estimates place the cotton crop around 10.5 million and 11 million bales. This season, the cotton crop is reported late by two weeks. The October 16-31, 2005 fortnight cotton figures indicate that on the reports of shorter crop and on the appeal of leader of growers are reported to have withheld cotton deliveries while ginners have withheld cotton sales resulting apparent increase of 12.5 percent and real increase of 25 percent.
At present, the shortfall in arrivals is around 1.521 million bales while increase in unsold stocks around 0.21 million bales making gross real shortfall around 1.73 million bales against total arrivals of 4,737,492 bales - about 29 percent.
The TCP is selling its 2004-05 cotton crop stocks to local exporters which puts bearish effect on cotton prices. Recently, the TCP has floated a tender for export sale of 50,000 cotton bales. Against the last tender, it could not sell any cotton to the bidders at US Cents 46.50/lb fob Karachi on ground of weakness in international cotton prices.
Recently, there was a news in cotton market that a prominent Thailand-based cotton merchant has approached the Export Promotion Bureau (EPB) for its assistance and help in getting settlement of his huge weight shortage/quality difference claims against one cotton exporter.
This is not the first case of this nature, but previously, several complaints of huge claims/defaults on the part of cotton exporters were received, but either nothing or very little was done in this regard.
The Karachi Cotton Association (KCA), being responsible for promotion of cotton export marketing, should have a permanent monitoring system covering all aspects of export of raw cotton, including settlement of foreign claims and action against the defaulters. Unfortunately, the KCA has failed in exercising its authority as is done by International Cotton Association formerly known as Liverpool Cotton Association, UK.
The Export Promotion Bureau/Government of Pakistan should make the KCA membership mandatory for all exporters of raw cotton like rice exports where rice exporters should have registration with the Rice Exporters Association of Pakistan (Reap).
This would help in eliminating the element of unscrupulous exporters, which on one hand damage the image of Pakistan abroad and on the other cause losses to foreign genuine cotton importers jeopardising the whole cotton export trade.
The KCA should also take up the task of preparation and of all established export types so that competition among our exporters could only be made on price and performance credibility.
The trends of withholding seed-cotton sales by growers and lint cotton by ginners indicate toward a very serious impact on cotton prices in the long run. Of course, sellers are benefited by higher prices when supply is short, but when everybody withholds sales, the result may be very dangerous for sellers ie drastic fall in prices adversely affecting all sellers. The present level of prices between Rs 2,300 and Rs 2,400 is out of parity with international prices.
The cotton exporters are getting comparatively cheaper cotton from the TCP stocks.
As such local lint cotton prices should loose about Rs 150-200 per maund to match the export prices. Other factors such as demand for cotton in international market, prices and offtake of cotton yarn in local and export markets, tight liquidity position, and large inventory of cotton with the buyers also resisting any increase in cotton prices.
China has asked its spinning mills to adopt such cotton procurement strategy which should not encourage high cotton prices. In case of need, China may release some cotton stocks from its reserves to resist increase in lint cotton prices in international market.
US has made export sale commitments of 7,219,900 bales by October 27, 2005, including 188,700 bales of US Pima cotton and has shipped total 2,681,700 bales, including 14,100 bales of US Pima cotton. Of total US export sales of 7.22 million bales, China has a share of 3.31 million bales, around 45 percent. This season, China's total cotton imports is placed around 14 million bales of which it has covered some more than 1/3rd of it from all sources including USA.
There is a news that some agreement between US and China has been concluded on Chinese exports of textile goods to US which would be effective till 2008. The percentage of Chinese textile exports to US is reported to be in favour of China. At least, this is a good news for international cotton and textile market.
The New York cotton market has been under selling pressure for the last three weeks. On the close of the week ending Friday, November 4, 2005, ruling December 2005 and March 2006 contracts closed at US Cents 51.44 and 54.23 while two weeks back these were at 54.49 and 56.42 Cents and another week back at 56.93 and 58.41 Cents respectively. In three weeks, December 2005 contract lost US Cents 5.49 and March 2006 contract Cents 4.18. There may come some profit-taking in next couple of weeks in the New York cotton market and prices appreciated by US Cents 2-3 but price trend in next two months up to December 2005 may maintain the price level of below Cents 60.