Cotton prices surge to all-time high

Brokers predict prices will touch Rs12,500; 5,000 workers laid off in 15 days.

KARACHI: Cotton prices in the local market surged to another record high on Wednesday owing to rising international prices and supply constraints following India’s decision to halt exports.

The Karachi Cotton Association (KCA) spot rate jumped Rs500 in a single day to peak at Rs10,500 per maund (37.324 kg) from Monday’s Rs10,000.

“Cotton supply only continues to get tighter while demand remains strong,” said cotton broker Lal Chand. “Indian exporters have stopped supplying the commodity to Pakistani buyers for the last three months,” informed Chand.

Cotton prices will continue to rally and cross Rs12,500 in the near future, added Chand.

Pakistani traders had signed contracts with Indian dealers at around 70 cents per pound while prices in the global market had surged to over 120 cents, prompting them to consider cancelling the deals.

The local textile industry had approached Indian exporters for import of 1.5 million bales to bridge the demand-supply gap caused by the damage to the cotton crop in recent floods.

Cotton, the most affected crop, had to bear a loss of Rs79.3 billion following the devastating floods. Around 10 to 15 per cent of the crop was wiped off by the raging waters.

The cotton crop of Kharif season is likely to be reduced to 11 million bales against the production target of 14.11 million bales set by the government, according to official estimates.

International prices at peak as well

“The local market follows the international trend where prices stand at a record high,” said JS Global Capital analyst Bilal Qamar.

High demand from China, the world’s biggest buyer and consumer, due to damage to its crop also pushed up prices, added Qamar.

Cotton futures advanced to record in New York after the US government cut its estimate of global production and cited a shortage in China. The March-delivery contract gained as much as 3.3 per cent to $1.52 a pound on ICE Futures in New York.

Indian sellers have the opportunity to sell to Chinese companies that are willing to pay much higher prices as demand is higher.

Value-added textile fading away

In the past 15 days, 5,000 people have been laid off and at least 12 factories have been shut down due to the soaring prices, said Pakistan Apparel Forum chairman Jawed Bilwani.

“Cotton yarn prices have tripled in no time. If this continues, you may see the collapse of the value-added sector,” said Bilwani.

Sector’s profit up

However, in the first quarter of 2010-11 the textile sector relished revenue and profit growth as they swelled 39 per cent and 295 per cent, respectively, on a yearly basis.

Revenue of the textile sector rose by 39 per cent to Rs84.6 billion on a yearly basis not only on the back of better product prices in export and local markets but also owing to an uptick in volumes, analyst said.

The spinning sector continued to be the star performer as revenue escalated 49 per cent to Rs29.2 billion due to increase in cotton and yarn prices both in international and domestic markets.

PTA prices follow the lead

Prices of purified terephthalic acid (PTA), a raw material used in making polyester staple fibre which is an alternative to cotton, in the regional markets are at a record high of close to $1,400 per ton amid global commodity price boom.

This is primarily due to continuous surge in cotton prices and  PTA supply constraints, said Topline Securities analyst Furqan Punjani.

The trend is likely to continue in the short run as PTA consumers such as polyester fibre makers and textile producers are currently reaping strong and healthy margins.

Published in The Express Tribune, November 11^th, 2010.