Cotton market marches further up

The cotton market continues upward march and prices touch record high of Rs7,550 per maund, making traders jittery.

KARACHI: The cotton market continued its upward march on Wednesday and prices touched another record high of Rs7,550 per maund (37.324 kg), making traders jittery. It eclipsed its previous record of Rs7,450 hit last week while in the open market rates went as high as Rs7,700 per maund.

The market took its cue from the skyrocketing New York Cotton Exchange where prices have surged 65 per cent since late July. On Friday last week, cotton prices in the US market reached their peak at $1.198 per pound. On Tuesday, December futures stood at $1.10 per pound.

US dollar’s weakness against major currencies, high Chinese demand for cotton and less-than-expected production in Pakistan have been cited as the main reasons for the market’s surge.

The recent floods in Pakistan have damaged around two million bales of cotton which may slash the production target from 14.6 million bales to around 12.6 million bales. Widespread sowing of Bt cotton, however, has rekindled hopes of making up for the loss but the picture will be clear only after February next year.

Total consumption of the country is 16 million bales and the shortfall is met through imports from India, central Asian states, Egypt and other countries.

“The decline in US dollar against the euro, yen and pound sterling has driven investors towards commodities in the international market. Gold has hit successive highs in recent months and cotton is following suit,” said Hamad Aslam, Research Head at BMA Capital.

He said China and Brazil will be net importers of cotton this season as the world production falls. In China, floods have damaged the crop in some areas, prompting Beijing to look for sellers in the international market.

“The domestic market has come to a standstill and only big mills can afford to buy cotton at such high prices. We are constantly following the New York market and that should not be the case as Pakistan is itself a major producer and consumer of cotton, so it should take its own course,” Shakil Ahmed, a cotton analyst, said.

He said traders are looking towards India for the import of cotton, adding Delhi is expected to unveil its export policy in November. “We have so far booked 650,000 bales from India which will arrive after Delhi gives the go-ahead.”

Published in The Express Tribune, October 21^st, 2010.