KCA spot rate fluctuates drastically,lint prices turn soft,volumn of trade depicts panic selling

KARACHI (September 27 2010): Firmer condition ruled on the cotton market partly for local limit mostly on world trend account during the past week ended on September 25, 2010 spot rate touched record Rs 7250 but could not hold the gains, by close of the week market condition forced KCA to cut the rate drastically to Rs 6850. Buyers remain active through out the week.

WORLD SCENARIO:

Cotton futures rose above one dollar a pound, major cotton players were in wait for. Pakistan and China, both were in view for being in not a happy position. In the meantime futures turned vulnerable and was subjected to, in the worlds of players, tamed correction. India has been over confident of its huge cotton inventory, but double mind, how and when to liquidate or hold back.

It has been more than once that delay in harvest and arrival has sent prices soaring over 70 percent compared with 200g rate. The growers world over have been encouraged to reserve more. Cotton prices wont be thwarted by rising cotton demand because President Obama's various dent mending moves and more recently near 200 billion dollar contract for sale of war machines will prove a shot in the arm. Further it will prove supportive to the seeding economy.

China and India are making most of the gifted cotton for their bulging population. China particularly is very conscious of this though it has embraced more neutral and knowledge based export sector to keep economy afloat.

Pakistan has been reaping what it had been sowing for the last 60 years. Begging for its textile products to be accepted at concessional rates, though friends have some hitch about inherent weaknesses such as human rights and good governance besides their interest they hold dear most.

On Monday the NY cotton prices surged more than three percent, jumping past the $1 a lb level for the first time since 1995 as clothing makers and other commercial users who sat out the summer rally were forced to buy at prices driven up by fund investors. Buying by speculators, mills and trade accounts stoked the rally. Investment funds sitting on money making long positions were also buyers anticipating cotton prices would get a further boost from consumer demand down the road.

High cotton prices have squeezed clothing makers in the United States and around the world. ICE Futures US data showed open interest in the cotton market stood at a year low of 153,514 lots as of July 13. Since then, open interest in the cotton market climbed over 50 percent to hit 234,697 lots as of Septemeber 17. For only the second time since 1960, cotton prices on the ICE Futures US cracked $1 at the start of trading in Asia and the key December cotton contract jumped as much as 3.76 cents or 3.83 percent to trade at $1.0198 per pound. Cotton eased off the session high but remained up more than one percent at over $1 a lb.

On Tuesday the NY cotton futures closed above $1 a lb for the first time in 15 years on fresh investment fund buying, tight supplies and strong demand in the market. The key December cotton contract climbed 1.42 cents, up 1.43 percent on the day, to end at $1.0079/lb, the first time benchmark cotton closed over $1 since 1995. The contract traded as high as $1.0237, again the highest intra-day level in 15 years.

On Wednesday the NY cotton futures ended down for the first time in five sessions, as investment and mill buying momentum slowed and analysts looked for prices to correct further after setting yet another new 15-year high earlier in the session.

ICE Futures US key December cotton contract ended down 1.17 cents at 99.62 cents, after hitting a new 15-year peak of $1.0334 per lb. The low for the day was at 99.55 cents.

On Thursday the NY cotton futures closed lower for the second straight day on due to heavy investor profit-taking and the fact that players from No 1 consumer China were away for a holiday and are not coming back to the market until next week, analysts said. Cotton prices had hit 15-year highs the last three sessions, trading above $1/lb each day. Strong demand from Asia, tight stocks and investment fund buying propelled the rally. ICE Futures US key December cotton contract dropped 2.45 cents, or 2.46 percent, to finish at 97.17 cents per lb, trading in a band from 96.82 to 99.71 cents. Total cotton volume traded stood at 25,883 lots. Some two-thirds above the 30-day average of 15,517 lots, according to preliminary Thomson Reuters data.

On Friday the NY cotton futures finished higher on investment fund and possible mill buying as the market finished the week up 1.7 percent, near a 15-year peak, with traders looking toward the return of No 1 consumer China to the market after a holiday break. Cotton, that surged past the $1 per lb level this week although it settled just shy of that mark on Friday, drew support during the session from a broad surge in stocks, gold and crude values and a weaker dollar. ICE Futures US key December cotton contract gained 2.76 cents to finish at 99.93 cents per lb. On the week, the market was up 1.74 percent. Volume stood at 15,553 lots. Barely lower when compared to the 30-day average of 15,862 lots, according to preliminary Thomson Reuters data.

LOCAL TRADING:

Cotton buyers aggressively laid hands on cotton bales poised to make yet another record - a both opening days and following day sent spot rate soaring by Rs 300 to Rs 7250.

The opening day saw cotton consumers buying aggressively assuming prices in Pakistan too will soar. The world rate has once again touched over one dollar a pound. The spot rate was raised by Rs 150 to Rs 7100. Consumers bought 9000 bales of cotton in price range of Rs 7000 and Rs 7500, while phutti in Sindh was selling up at Rs 3300 and Rs 3350, in Punjab it was at Rs 3100 and Rs 3300.

On the second day another Rs 150 push upward was market placing spot at Rs 7250, phutti was selling at Rs 3200/Rs 3300, while in Punjab it was selling at Rs 3100 and Rs 3300. The good news, according to market sources, was efforts are being made to enhance exports of textile products.

On Wednesday spot rate stayed put as cotton consumers lifted over 13000 bales costing Rs 7050 and Rs 7400 depending on quality. The new point was that Sindh phutti conceded Rs 100 to Rs 3100 and Rs 3200, in Punjab phutti lost Rs 100 to Rs 150 to Rs 3000 and Rs 3050. There was no relent in buying for fear of rise on world rate count and speed with which buyers are lifting. However, the government efforts to find new markets may yield the dividend. Indian expectation that cotton production will hit the record high 35 million bales may ease the situation.

On Thursday phutti smooth arrivals restrained uppish outlook allowing buyers to lift 17000 bales, between Rs 7000 and Rs 7350 depending on quality. In world markets last two days have seen prices remaining softer. In any case Pakistan manufacturers and exporters of textile products are optimistic some favourable breeze seems around. The EU is very keen to extend helping land. How that proves gainful coming days will show on Friday.

On Friday Karachi Cotton Association (KCA) official spot rate was cut sharply down by Rs 250 to Rs 7000. In the ready business, approximately, 20,000 bales of cotton changed hands between Rs 6800-7200. Seed cotton prices in Sindh were down at Rs 3000-3025.

On Saturday spot rate was dropped by Rs 150 to Rs 6850. In the ready business nearly 20,000 cotton bales changed hands between Rs 6750-7200. In the meantime, seed cotton prices in Sindh were higher by Rs 100-150 to Rs 3100-3150, in Punjab prices were at Rs 2900-3100.

BEWAILING ABOUT COTTON BALE LOSS:

A number of estimates about loss of cotton bales floated by different interests in the wake of raging floods in decades are deplorable. This is a fond practice spilling unchecked as authorities responsible for furnishing reliable estimates feel relieved some one doing the task on their behalf. How damaging is on the proper planning seems no ones concern. It is again determining how much of the standing cotton crop must have been washed away by the ruthlessly gushing waters.

One thing, however, is clear. Thousands of bales have been lost in Pakistan and of course on different count in China, while demand seems to inch up during the 2011, pushing prices still higher as world cotton rates are chasing $ one a pound or may be more, being experienced after over a decade.

Textile exports are principal forex earner for this country or over 60 percent of combined all products exported. This is not advisable to plan exports from whatever is stocked in inventory and surplus countries like India and America can make available. The high cost of doing business can be thus managed. The traditionally friendly countries are deeply reluctant to rush with philanthropic will free access in their markets, all these have hurdles in legislation first and then to face the voters (manufacturers of textile products) negating that this country in dire straits.

There have been infrastructure losses and disruption in power generating units as a result. Besides the PSO has long outstanding receivables estimated about Rs 140 billion has finally discontinued fuel supplies to Hubco and Kapco who are likely to shut operation. Anyway the yarn makers and textile exporters are in a better position to judge what under the situation they should do, in view of the bulging orders in hand?

DIVERSIFYING MARKETS:

The gain side has long last dawned on Pakistan exporters particularly of textile products. Better late than never-Pak exporters to participate in Russian Trade Fair - on Hem Textile Line as annual feature in Frankfurt, Germany. The chairman Pak-Russia Business Council (PRBC) of (FPCCI) M. Farooq Afzal will lead the team comprising 10 Pak firms.

Participation in Moscow fair won't mean interaction will be restricted to Russia rather include Eastern Europe, CIS and Central Asian states, besides regional countries. Pakistan has always been nagging about lack of lucrative markets, as they love to stay within four walls. Exporters also lament about abhorring law and order situation, which provokes countries to prompt its citizen to avoid visiting such and such countries.

Wrong perception that expenses over visits to prospective markets are sheer waste. Instead, cannot it happen that one visit entices series of orders for imports. The practice seems to have begun with an individual exporter apparently who exhausted the stock he carried and sought fellow exporters in Pakistan to rush with fresh stocks.

New suppliers - China, India BD, Sri Lanka etc have overlapped the EU and US markets used to be once Pakistan's. Anyway a beginning is being made to diversify new markets and, which combined together will not be short in size or business opportunities. Let us hope when Pakistanis are so ardently looking for new markets - they may be at arms stretch.

GSP PLUS BY 2014:

Not that Pak exporters knew not well why friendly countries holding back market access as enjoyed by the rivals. Pak exporters, more particularly the authorities who feel rather baffled why such discriminatory attitude towards Pakistan. A little exercise could open up not filth littered pandora's box a very common word 'Weakness'.

To be a little more specific because Pakistan has through decades trampling over its vast God given potential announcing loudly Pakistan is import market for the countries who have flourishing through exports. This country has only export sector - exporting textile products whose earning revenues stuck up - while similar exports made by other countries one being South Korea earning $100 billion with cotton and yarn exported from Pakistan that it earns ten times more.

The US and EU are Pak trade markets but not without pot holed in their way. Any violation in supplies was admonished by imposing anti-dumping duty to tell enough is enough. This GSP plus is cherished but they know it is unthinkable. Even today, in the after math of ravaging floods, when world has opened up its purses for relief, the GSP plus remains out of question. After hectic efforts top level physical presence could just manage one or two billion dollars more in old fashion supplies from this flood battered country.

Besides the grace has fluttered through the EU should be taken for granted. And about GSP plus a wait has been placed until 2014 - but not many here see the possibility?

TEX SECTOR UPBEAT, GOVT CAUTIOUS:

Both the textile sector and government is chasing the same end immediate and gainful accord to enable the battered economy settle down. Why then the two have divergent understanding on the unilateral trade concessions, agreed by the European leaders at a European council summit the other day. If the government team desired to be cautious and wait until the EU had placed the end result above board. In contrast to textile sector groping in the dark. The private sector jumped over gain figure putting at two billion dollars in addition to on going dollar seven billion worth exports.

Against this blunt assertion the commerce secretary Zafar Mahmood, a member of the Pak delegation talking to newsmen advised caution and suggested that until the agreement was effective speculation would achieve no purpose. The secretary said in the aftermath of the European Council weeklong summit explained that EU has used words "Immediate and time limited reduction, which imply that entire process may be completed within weeks rather than months. He pointed out that list of items tariff and duration of trade concession are yet to be finalised. And the EU and not the Pak textile exporters will determine.

Not long before, a delegation from this country was in Russia exploring prospects of marketing Pak textile exports. On return Trade Development Authority of Pakistan released data, which was in contrast to what a textile group boasted about grip on the Russian markets. The UNO, which came close to Pakistan found appeal for donation not as substantive, we in the country are at loggerheads who enjoys more authority. May God help us to live in harmony and peace. France, Germany and even Britain came forward for effective help. Pakistan most hopefully wait for free access to markets and GSP plus facilities sooner than we hope.