Cotton futures prices cruise at majestic levels

LAHORE  (January 28, 2011) : Cotton futures prices in New York (ICE) rose fantastically this week by about ten to eleven cents a pound (as at 6:00 pm Pakistan Standard Time) and were loitering around 172,80 per pound for the key March, 2011 contract.??There was no knowing how far further north the fibre prices would travel given high buoyancy in the commodity complex, global shortage of physical cotton, re-emerging Chinese purchases of cotton and prospects that after the spring holidays the Chinese would re-enter the cotton market to buy further cotton to complete their purchases.??Pakistani millers who have just returned from Frankfurt from the Heimtextil Fair said that fabric prices are also now catching up with cotton and yarn prices signalling prospects of cotton futures prices to rise to 180 cents per pound, or even dash to two US Dollars a pound to satiate the unfulfilled demand for cottons of the spinners who are mostly catering to the Chinese market.??Some veterans of the cotton market say that the prevailing price structure and movements are not just volatile, they border on being dangerous. Most cotton and textile business is in disarray with several settlements and resettlements going on incessantly between the buyers and the sellers. It has yet to be determined whether a classic squeeze or corner has occurred in the cotton futures market because with all the activities of the hedge and speculative funds, the market payments get settled on time till now. Even recent mills fixation of on-call contracts show that till date the futures market mechanism seems to be taking the extraordinary strains and stresses easily where the dynamics of supply and demand seem to be ruling the roost.??According to textile circles in Punjab and in Karachi, the Indian exporters supported by their government have unnecessarily put a spanner in the works by disturbing the otherwise smooth and eminently efficient functioning of cotton futures and also physical trading markets for almost the past one century around the world.??According to media reports, the chairman of the All Pakistan Textile Mills Association (APTMA), Gohar Ejaz, has expressed his serious concern regarding the delaying tactics of the Indian government in the shipment of about one million bales of cotton purchased by Pakistani mills. Gohar Ejaz contended that this step by the Indian government has encouraged the Indian cotton exporters to take refuge under an alibi and have thus struck a big blow to the free market mechanism previously prevailing in the global cotton market.??Under a similar strain of arguments, the chairman of the All Pakistan Bedsheet and Upholstery Manufacturers Association (APBUMA), Khawaja Muhammad Jalaluddin Roomi, said recently in Multan that the Indian government intervention in the free market mechanism of cotton trade has brought rightful concern and apprehension from the global cotton community. Khawaja Roomi deplored the Indian government attitude in causing undue hindrance in cotton exports from India. Traders in Karachi also criticised the intervention in cotton exports from India which has led to the vengeance of cotton exports contracts to Pakistan and elsewhere.??In another news item emanating from Multan, the Pakistan Cotton Ginners s Association (PCGA) have announced that they are resuming the purchase of seedcotton (kapas / phutti) after an interruption of several days. This step was possible when the member (Policy) of the Federal Board of Revenue (FBR) Irshad Rauf assured chairman PCGA Masood A. Majeed that ambiguities in the SRO 1161 would be removed to enable them to purchase seedoctton from the growers easily. Also, the relevant SRO would not be implemented till March 2011.??Pakistani mills are likely to consume at least 14 million bales of cotton of domestic size during the current season (August 2010-July 2011). Most of the larger mills are covered upto June 2011. The medium size mills are covered till March 2011, while smaller units have cotton to last them till the end of February 2011 or the middle of March 2011. It is seen that with global increase in cotton prices, the rise in yarn prices will assist the spinners to partly make up for the expensive fibres prices. Today upland imported cotton of 1-1/8 inch staple length may cost upto 190 cents per pound which would convert to a landed cost of more than Rs 12,000 per maund (37.32 kgs), while local lint of comparable fibre characteristics costs from Rs 11,200 to Rs 12,500 per maund today.??Both seedcotton (kapas / phutti) and lint prices in the domestic market are ruling at record high levels. Seedcotton prices in both Sindh and Punjab ranged from Rs 4,200 to Rs 5,000 per 40 kgs according to the quality. Lint prices in both Sindh and Punjab were said to have been offered from Rs 10,200 to Rs 11,500 per maund, according to the quality. With these sky-high prices, one may presume that Pakistan may reap upto 16 million domestic size bales of cotton during the next season (August 2011-July 2012) because the cotton growers got more than double the price for their produce during the current season (2010-2011).??In ready sales reported on Thursday, 800 bales of cotton from Khairpur district in Sindh sold at Rs 11,250 per maund (37.32 kgs), while 500 bales from Daharki in upper Sindh sold at a record high rate of Rs 11,500 per maund. In the Punjab, 400 bales of average grade cotton from Harunabad were said to have been sold at Rs 10,300 per maund in an otherwise very tight market.??On the global economic and financial front, equity markets may be riding high, but the inherent weaknesses of several of the forefront economies in Eurozone, the United Kingdom and the United Stets of America continue to prevail stubbornly. Besides, a tectonic shift in economic power and development is slowly but surely emerging putting China, India, Brazil and Turkey in the limelight, more so to Asia.??The economic recovery in the United States remains stubbornly slow while the budget deficit will reach a historic Dollars 1.5 trillions this year. This situation hardly leaves the US government to borrow more, while more stimuli would be needed to hasten the economic recovery, putting the country in a classic dilemma. United Kingdom has reported a very slow fourth quarter growth during 2010, while the government has hardly any options to borrow more money to keep the economy going. The Eurozone economy still remains essentially in the doldrums except for Germany, as Eurozone financial instability remains an area of high concern.??The end result appears to be that despite massive government stimuli, the unemployment in Eurozone, the United Kingdom and America remains high putting untold unemployed citizens to continued misery. A couple of thousand economic and political leaders are meeting this week at Davos in Switzerland to suggest ways and means to surmount what appears to be the greatest economic and financial breakdown ever to appear in the modern world.