Cotton markets volatile

KARACHI: Cotton prices remained volatile in the outgoing week, surging to a new record high of Rs7,000 per maund before receding to Rs6,700 on Friday.

Data received from local cotton exchanges revealed that prices climbed from last week’s closing of Rs6,600 to Rs6,750 on Monday as news of an imminent shortage of cotton spread in local markets.

The cause for concern arose in the wake of floods that have engulfed many of the areas in Punjab and Sindh where cotton is cultivated.

Early estimates of the damage put cotton cultivation losses in the current season as high as two to three million bales.

Concerns of restricted supply continued to plague dealers and rates climbed to Rs6,900 per maund on Tuesday and went up another Rs100 on Wednesday to close at Rs7,000.

After trading at the record high, rates tapered off on Friday.

“Initial reports of flooding had spread fear amongst buyers and panic purchasing made prices surge,” explained Younas Khan, a cotton broker.

“Now that estimates are filtering in, there is a better picture emerging and some of the frenzy is starting to die down,” he added.

Market data revealed that the price of cotton dropped by Rs300 on the last working day of the week, ending the week at Rs6,700 per maund.

“Rates in Punjab went as low as Rs6,600 while in Sindh they fell as low as Rs6,200,” commented the CEO of Usman Cotton Company, Ayub Usman.

However, dealers are not ruling out the possibility of fresh increases in prices during coming weeks.

They pointed out that fresh deliveries of phutti (raw cotton) are not arriving on time and comprehensive reports on the extent of damage to cotton crops are still not available.

Meanwhile, spinners are also facing their own set of problems in Punjab. Most spinning units are performing under capacity at the moment due to the shortage of gas.

Even though the market is divided on the direction of cotton prices in the upcoming week, traders agree that volatility will prevail until better assessments of losses are available.

Published in The Express Tribune August 15^th, 2010.