Cotton prices expected to rise again

KARACHI: Cotton prices may rise once again to Rs10,000 per maund (37.324 kg) on the back of shortages and heavy demand of the commodity from the spinning and textile mills, an analyst said.

Ten days ago, spot rates of cotton had surged to Rs10,500 with support also coming from the rising New York cotton market which had been propelled by high Chinese demand for the commodity and weakness of the dollar against major currencies. In the open market, prices had advanced to record highs above Rs11,000.

Later, prices dropped by Rs3,000 in quick time as activity slowed down because of dearth of transport vehicles which were being used for movement of sacrificial animals. Besides, workers went to their hometowns to celebrate Eid.

Pakistan is facing shortage of cotton this season as an estimated two million bales have been damaged by floods that hit large parts of the country from end-July to August. Dealers were expecting to meet the shortage through cheap imports from India but exporters from the neighbour were demanding higher prices for even those contracts that had been struck some months ago at 70 to 90 cents per pound.

“Indian exporters are demanding around $1.5 per pound which is quite high and is not possible for Pakistani importers to pay,” cotton analyst Shakeel Ahmed said.

Pakistani traders had booked 550,000 bales of cotton from Delhi, but when a delegation of textile mills went to meet the Indian traders they agreed to supply only 200,000 bales and that too at $1.17 to $1.2 per pound, Ahmed said. “For more supplies, they demanded $1.3 which comes to Rs10,300 per maund in rupee terms.”

Pakistan consumes 16 million bales of cotton a year compared to expected production of around 12.4 million bales this season. However, a cotton exporter suggested that the crop loss would be offset by large-scale cultivation of high-yielding Bt cotton variety, particularly in Sindh. Last year, output stood at 12.7 million bales.

Discussing market activity during the week, Ahmed said deals were struck on credit due to the long Eid holidays. He said growers have supplied 95 per cent of the crop and in Sindh some factories were being closed as raw cotton arrival has stopped.

In the New York cotton market, the benchmark March contracts closed down six cents at $1.23 per pound on Friday as China, a major cotton importer, announced measures aimed at tightening capital to cool the economy. Last week, cotton prices had hit an all-time high of $1.57 in the New York market.

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