Overall cotton prices in the local cotton market witnessed a downward trend because of cautious buying by the textile and spinning mills and bad effects of rains on seed-cotton (Phutti) in the cotton-growing areas. Another major reason of lower cotton prices was an additional 10 per cent tariff imposed by the US on Chinese imports.
Cotton rates registered a decline of Rs 300-400 per maund while lower quality Seed-Cotton (Phutti) also registered a decrease of Rs 200-300 per maund besides decrease in its supply, though mills have already made their required purchase. Mills adopted a cautious approach in the procurement of cotton because of long Eidul Azha holidays and rains. The sluggish business is hoped to pick up after Eidul Azha.
Recent rains may increase the cotton production but growers have to play safe and strictly monitor their crop against the attack of pests and viruses as moisture increases the chances of pest attack. Cotton rates remained at Rs 8100 to 8300 per maund while Seed-Cotton (Phutti) rates were registered at Rs 3500 to 3900. Seed-Cotton (Phutti) rates in Balochistan were witnessed at Rs 3900-4000 per maund.
Karachi Cotton Association's Spot Rate Committee decreased spot rate by Rs 300 per maund and it closed at Rs 8300 per maund. Karachi Cotton Brokers Forum's Chairman said that importers of cotton are active again while the government has again slapped a 10 per cent sales tax on cotton import and deferred any decision on proposal of fixing the indicative price of cotton at Rs 4,000 per maund. He was of the view that indicative price should have been fixed before sowing to encourage growers to bring more area under cotton cultivation. However, there is still time to fix the indicative price as the season has just set in and growers have Seed-Cotton. Fixation of indicative price will also encourage the growers to take better care of their crop.
He said that imposition of 10 per cent sales tax is creating numerous problems and mills have to pay this tax through ginners. He said that textile mills have to pay Rs 325,000 on one lot of cotton to the FBR which will be refunded on a later stage. It has created the apprehensions of liquidity issues for the mills as their money will stuck with the FBR. Delay in the payment of refunds and increase in the interest rate which is at 13.25 per cent right now may render the mills unable to have huge stocks of cotton. While ginners will also be very cautious in keeping the stocks, which according to experts may lead to a further fall in cotton prices as both buyers and ginners will not be able to have heavy stocks.
Jahangir Tareen, Adviser to the Prime Minister Imran Khan had a meeting with the representatives of the Pakistan Central Cotton Committee (PCCC) last week and assured to make the PCCC more effective. The Government needs to take immediate and effective steps besides making Pakistan Cotton Standard Institute (PCSI) also more active to ensure contamination-free cotton production.
There is also a recession in the global market as the US President Donald Trump has imposed additional 10 per cent tariff on imports from China thus making the economic conflict between US and China more complicated and intense instead of its resolution. It will also lead to decline in prices of cotton in international markets as New York Cotton witnessed a decrease of three US Cents bringing the price to below 60 cents per pound. Chinese Cotton witnessed a decline of more than 300 points while the Indian market is also in recession. Increase in tariff and US-China conflict will make a negative impact on global business and thus will also impact the local cotton, leading to more decline in the prices. Many experts believe that China will prefer Pakistan over the US to import cotton but past experiences show that the Chinese require high-quality cotton so it will prefer India or Brazil.
Local textile and spinning mills' owners are also complainant of increasing energy prices which are leading to higher input cost thus leaving a negative impact on exports. Petroleum products had also been increased from August 01, 2019, rupee-dollar parity is also unreliable hinting at further loosing of worth by Pak rupee against the greenback, and all these factors are creating an environment of uncertainty in the market. Traders and industrialists are cautiously watching the situation and abstaining from doing business freely.
Recent rains have brightened the chances of a better cotton production but at the same time can also hit it negatively. At present, it is being estimated to have a production of 12.5 million bales of cotton.