August 19, 2002	Monday	Jamadi-us-Saani 9, 1423

The recent price flare-up on the local cotton market may not be based purely on speculative mill buying, it may have been caused by some insider reports of damage to the standing crop in major growing areas, and an expected pressure on the future supplies.

A mid-season review of the new crop in the backdrop of the recent increase of about Rs500 per maund just in two weeks has raised many questions, outstanding among them are the allied problems on export front, doubts on the achievement of textile-based export target of $10.4 billion, and the competitiveness of the local textiles on world markets.

“Mills or spinners are not fools to push prices to two-year high just in the beginning of the season, they must be having some negative reports about the size of the new crop based on their own survey network”, said a leading cotton specialist.

In normal trading conditions, no spinner would purchase new crop lint at Rs2,350 per maund, which is billed well above their prevailing export parity level for the cotton yarn, they indulge in panic-buying only in abnormal situations based on their own surveys, he added.

Most cotton brokers claim that the new crop cotton prices rose at the start of the season, but only after a preceding bad crop and the new crop prices adjust according to the supply and the demand factors, without outside interference.

But the official cotton crop assessment committees in their fortnightly meetings aimed at reviewing the situation stated that the newly sown cotton crop was progressing well, and despite reports of pest attack in some areas of the central Punjab cotton belt, the production was expected to be in line with the official projections.

The sowing of high-yielding varieties in some of the most fertile areas of southern Punjab cotton belt could compensate for any crop loss on account of pest attack.

Moreover, they claimed, the pest attack in Punjab cotton belt did not assume an alarming proportion, and was contained well below the economic injury level, thanks to timely sprays by the farmers.

“Based on the prevailing world cotton prices, our export parity level comes at Rs1,900 per maund on the higher side for an average quality lint”, most spinners claimed.

“Imagine what it could well mean to the spinning sector after the short staple lint from the lower and central Sindh cotton belt was available for Rs2,300 or above”, they said.

But the local brokerage houses claimed that the spinners were themselves to be blamed for the current price flare-up as a little patience on their part could have been beneficial for the entire cotton trade.

“After having purchased about 10 million bales from the local market and importing about 1.3 million bales at much lower rates, how much more lint they need to meet the annual consumption demand”, they queried.

The total availability of over 11 million bales was enough to meet the demand of the entire textile sector, including those 100 or odd sick mills, which have resumed production after liberal credit and some other supporting official steps to revive the ailing textile sector.

“Most worried were their weaker links in the developing situation as their financial positions and export outlets do not allow them to follow the current price flare-up”, brokers said.

Sown on 8 million acres of land both in the Sindh and the Punjab cotton belts, specialists predict that the total production could match that of the last two year’s figure of well over 10.5 million bales.

Pakistan’s organized mill sector having in its fold over 400 or odd spinning and textile units, governed by its apex body known as the All Pakistan Textiles Mills Association (Aptma) is expected to consume about 10.3 million bales, leaving a sizeable exportable surplus.

Under the cotton policy export and import of cotton is duty free. Both a formidable private sector and the Trading Corporation of Pakistan do most of the foreign marketing of the silver fibre.

Cotton brokers have predicted a bullish trend on the basis of reports of an extensive damage to the new crop owing to heavy rain and floods in the major cotton growing areas, including China. This will continue to inspire speculative buying from the world users.

The New York cotton futures, considered to be the barometer of world prices, had already soared to 45 cents per lb from the seasonal lows of 30 cents per lb on speculative buying fuelled by the reports of world shortages.

The International Advisory Committee had forecast a global shortage of 4 million bales and put the total world production at 88 million bales as compared to the next year’s consumption of 92 million bales.

Pakistan’s cotton exporters and textile mills were said to be working on the current crop estimates on the hopes to get maximum benefit from the developing situation, if all goes well with the new crop.

Aptma had already indicated to further its share in total export proceeds from the current $6 billion or 66 per cent to $7.5 billion or 70 per cent to push the annual export figure to $10 billion as had been set in the new trade policy.