The week in focus

Unprecedented increase in cotton prices has brightened the prospects of a bumper crop next season.

The unprecedented increase in cotton prices in domestic and international markets has brightened the prospects of a bumper crop next season as farmers will try to cash in on the opportunity by sowing the crop on a large scale.

Textile millers who stocked up inventories much earlier, yarn producers and polyester staple fibre manufacturers have also made a windfall from the surge in cotton prices this season. Market players expect prices to rise further in coming days.

In the domestic market, cotton prices rose to a record high of Rs13,000 per maund (37.324 per kg) against Rs6,000 at the start of the season in May last year, driven higher by heavy demand and crop shortfall caused by floods last summer.

In the New York cotton exchange, prices shot up to the peak of $2.04 per pound because of increased demand from China and textile mills.

A leading farmer said cotton production next season could be around almost twice the current seasons production on the back of high prices of the commodity and increased cultivation of Bt (Bacillus thuringiencis) seeds which give higher yield compared to traditional varieties.

Awareness of farmers

However, cotton market analyst Shakil Ahmed said the next crop particularly depends on availability of water which has been in short supply for the past few years. Another issue that he highlighted was that there is a need to create awareness among farmers of proper methods of cultivation, usage of quality seeds and fertilisers, on-time sowing and careful harvesting.

“Substandard fertiliser dealers encourage farmers to purchase their commodity by giving incentives such as sales on credit and with some gifts like television sets on heavy purchases,” he said. The use of such fertilisers as well as substandard seeds damages the quality of cotton and also reduces the yield.

Ahmed saw the demand of polyester staple fibre, a substitute for cotton, rising sharply as a result of the surge in cotton prices. Owing to the global shortage of cotton and its high prices, polyester is widely mixed with cotton in manufacturing textile products.

Polyester makers to make gains

BMA Capital Head of Equity Research Hamad Aslam said spinning, weaving and other textile mills that had covered their needs of cotton much earlier will benefit from the increase in prices. He said overall exports of the country have risen in the past few months and textile exporters have made gains by exporting yarn at high rates.

However, “continuous gains for the sector are not expected as importers of our textile products are not likely to agree on an increase in prices due to high cotton rates”.

Discussing the demand of polyester staple fibre (PSF), Aslam said margins on PSF are high as demand has exceeded supply of the artificial fibre. ICI and Ibrahim Fibres are operating at 100 per cent capacity while Dewan Salman Fibre is closed. In its financial results declared on February 17, ICI Pakistan announced an increase of 18 per cent in net profit to Rs2.34 billion in 2010 on higher sales of its products – PSF, soda ash and paints.

According to Aslam, Pakistan consumes 600,000 tons of PSF, of which 100,000 to 150,000 tons are imported.

Not only the PSF manufacturers but also the producers of pure terephthalic acid (PTA), the main raw material used in the manufacturing of PSF, will also see their earnings rise as a result of the high demand of PSF. However, according to Aslam, the situation is mixed for the textile sector, where those who have inventories will make high revenues by selling raw cotton and yarn while those who have not will lag behind.

the writer is incharge Business desk for the Express tribune and can be contacted at [e-mail]

Published in The Express Tribune, February 21^st, 2011.