Cotton prices hit all-time high

Prices in local markets tapering, international markets surge to Rs10,600 per maund at beginning of the week.

KARACHI: Buyers rushed to buy all the cotton they could get their hands on as local prices rocketed during trade on Friday. The spot rate for cotton trade surged to Rs10,800 per mound, the highest level ever seen in the country. Trade in the country’s cotton markets took place at even higher rates as transactions were carried out at up to Rs12,000 per mound.

Prices in local markets had appeared to be tapering, in line with international markets after surging to Rs10,600 per maund at the beginning of the week. However, fresh jitters hit buyers after India revealed its cotton output in 2011 would fall short of its target by two million bales.

Southern India Mills Association announced on Thursday that the their cotton output would stand at about 30.9 million bales as compared to previous estimates of 32.9 million bales. The international price of cotton in New York peaked at $1.70 per pound on Friday.

Local dealers highlighted that apart from surging international prices, poor domestic production of ‘phutti’ has also contributed to panic buying in local markets. Manufacturers and market participants have called for limitations on the export of raw cotton and cotton yarn, estimating domestic demand to be 16 million bales in 2011.

The country’s production stood at 12.5 million bales last year, while this year’s production target was set at 14.2 million bales. “This year about 80 per cent of cotton cultivation in the country was done using BT cotton seeds,” said cotton dealer Shakeel Khilji.

Bacillus Thuringiensis (BT) cotton usually yields twice as much as the conventional ‘nayab’ seeds used in the country yield. “We had expected better yields because of the prevalent use of BT cotton seeds but the recent floods in the country destroyed major cultivations, taking a huge chunk out of local supply,” explained Khilji. The dealer also highlighted that Indian suppliers have broken commitments with Pakistani buyers repeatedly. “In recent months each time prices in New York increased, Indian suppliers have backed out of deals with Pakistani buyers,” he said. Market participants said that so far only 800,000 bales of cotton have been received from India while deals worth millions of rupees have been dishonoured.

However, local manufacturers are also wary of heavy speculation by investors in China and the United States. “Investors all over the world are getting into commodity markets after having lost confidence in currencies and equity markets,” commented a local textile mill owner.

Pointing out that prices have fluctuated by up to 15 per cent within a week of trade, the textile mill owner said, “This can only happen due to heavy speculative trading in the commodity”.

“The price of yarn makes up 60 per cent of the total cost of finished products,” explained Alfaz Enterprises Director Amin Sakhia. He asserted that working capital requirements of textile mills have shot up three-fold over the past 18 months, as cotton prices have increased from Rs4,000 per mound to the current level.

Sakhia said many local manufacturers are not in a position to handle the same volumes as before because of liquidity restraints in the face of surging cotton prices. However, market participants contested that if the financing limits set by lending institutions were to be eased, the rate may shoot up even higher.

Published in The Express Tribune, January 29^th, 2011.