Virtual standstill on cotton market-Texglobe

LAHORE (May 14 2010): After the clamping of a Regulatory Duty (RD) of 15 percent on yarn exports, cotton market became listless because it is feared that this step of the government will render a sizeable section of the textile industry under pressure. Brokers said on Thursday that leftover of unsold stocks from the current crop (2009-2010) were meager, but the ebullience of the growers and traders has suffered a setback because the extent of the Regulatory Duty is excessive.

According to initial reports, mills sales of yarns in the export market could be frustrated leading to serious problems of both manufacturing and marketing. According to Haji Abdul Shakoor Dada, a former chairman of the Karachi Cotton Association (KCA), the problems of one textile sub-sector, namely the value-added industry, have been shifted to the spinning sector.

Haji Shakoor said that in case one sector or sub-sector is in difficulty, it should be provided necessary incentive by the government but the burden of one sector should not be shifted to another sector. Haji Shakoor Dada added that it is always preferable that free trade mechanism should be maintained.

Mills sources said that with import of cotton at 92 or 93 cents a pound, there will be a big lack of parity between raw cotton and yarn prices, and thus working on expensive cotton is quite unfeasible under the present circumstances. With the imposition of the Regulatory Duty on yarn exports, the smaller units will suffer more. Moreover, a considerable loss of foreign exchange will ensue due to notable decrease in yarn exports which will lead to decrease of foreign exchange earnings and increase in unemployment.

The spirit of the growers who were planning on planting a record crop for the next season (2010-2011) could be negatively effected. Also, with recent Indian restriction on cotton exports, already the spinners in Pakistan were apprehensive that their cotton shipments from India could be frustrated. Therefore, with prices of international physical cotton remaining high, Pakistani spinners have come under pressure.

With these bearish factors, cotton business has become muted while mill-owners were said to have huddled into various meetings to evolve and then express their reaction to the government step to slap fifteen percent Regulatory Duty on the export of cotton yarns. Earlier this week, yarn and textile sectors were running relatively normally but now they have been put in a quandary. Thus lint prices in a listless cotton market were reported to have ranged between Rs 6,000 and Rs 6,500 per maund (37.32 kgs) according to the quality.

Under these circumstances, spinners are still trying to ascertain about the status of their pending export sales of yarns and how they will fare under the newly imposed Regulatory Duty on yarns. According to trade circles, mills were contemplating that if Regulatory Duty on existing pending sales was demanded by the customs authorities, mills would approach the competent courts to restrain the authorities from claiming such Regulatory Duty.

Yarn dealers said in the afternoon that prices for medium counts of yarns had fallen by Rs 150 to Rs 200 per ten pounds. Likewise, lint prices also came under considerable pressure. Prior to the impending federal budget scheduled to be announced on the 5th of June 2010, both cotton and yarn markets are suffering sizeable bearish pressure which has upset the market and sent it into turmoil.

On the international economic and financial front, a dramatic scheme worth nearly United States Dollars one trillion was announced about a week ago which catapulted global markets to higher peaks reminiscent of the bank bailout plans announced nearly seventeen months ago to rescue almost all the leading global banks which were then floundering in big losses in various loans and other operations. The Eurozone countries finance strategy backed by the International Monetary Fund (IMF) will provide sundry assurances and guarantees to Eurozone countries in case they move towards financial instability or veer towards bankruptcy.

The trillion dollar crisis fund is designed "to defend to Euro whatever it takes" to do it. What is really happening by these measures is that all the bad debts accumulated by the banks over the past several decades coupled now with the corruption and mismanagement of various governments have been underwritten by the tax payers for many years to come so that several countries around the world will sooner or later again fail on their sovereign debts.

Be that as it may, presently the equity markets are under a buoyant mood with the hope that these measures should have salutary effect on their finances and economies. Therefore, the leaders of most countries around the world including the USA, the United Kingdom, Europe and China have deemed it necessary to provide unprecedented large bailout moneys as a safety net to obtain social security and economic recovery.

The other significant news is the resignation of the Labour party government in the United Kingdom under Prime Minister Gordon Brown and the induction of the new Prime Minister David Cameron of the Conservative party in coalition with the Liberal Democrats party. Many view this arrangement as tenuous and fear that it could unravel in the near future bringing more political, economic and financial turmoil around the world.