What prompted the Trading Corporation of Pakistan to resume cotton procurement operations is a question being debated in textile circles for the last few days. The mid-season entry of the TCP is a surprise for those associated with the cotton trade, as the move is not compatible with the prevailing realities.

The progressive growers, who still hold a sizable stock of seedcotton (phutti), on average fetch for the commodity Rs1,050 per 40kg — the highest seasonal rate being Rs1,225 for good quality stocks against the official support price of Rs800 per 40kg. The spinners are willing lint-buyers between Rs2,250 and 2,450 per maund depending on the quality premiums of the lots in trade. What was the need to direct the TCP to resume operations, as it has many other pressing problems to resolve.

“In just one go, the entire cotton trade became a complete mess”, spinners claim, adding,”who will decide whether it is better to add value to export products or sell them in a raw form”.

Spinners fear the lint prices could swell to Rs2,700 per maund in post-holiday trading in sympathy with the higher TCP price of Rs2,459 per 40 kg, upsetting their export projections and adding significantly to the production cost of textiles.

The TCP sources commenting on their late operations say, “we have to abide by the official directive without questioning the rationale behind such a move, and that is why we are in the market”.

“We are buying only contamination-free lint from some registered ginneries in upper Sindh and southern Punjab cotton belt to support the growers for the next crop,” the TCP sources said.But they were, however,not clear as to how their purchases would affect the local prices.

According to official policy guidelines the government agencies have been asked to enter the market if the prices fall below the minimum procurement rates in a bid to ensure fair prices for tillers. Moreover, the official agencies are allowed to resume operations after spinning sector purchases the bulk of its annual requirement of lint. The step is aimed at ensuring competitive prices to all major participants including the grower, the ginner and the spinner. Nobody could deny the fact that the mill lint consumption has already touched the high mark of 1.250 million bales last year as more than 100 sick mills had resumed their operations after sponsors undertook modernization and expansion programmes.

The current year’s crop may not touch the high mark of 10 million bales, according to latest phutti arrival figures. Some cotton analysts predict a final crop figure of well below 10 million bales. The supply gap may be around 2.5 million bales.

Some leading spinners fear a lot of political manoeuvring behind the TCP’s snap entry into the market at this late stage. It will certainly affect the national export target of $10.5 billion, 65 per cent of which is contributed by the textile sector, they say.There is a supply gap of about 2 to 2.5 million bales.

Spinners are worried over the supply gap and could not precisely decide how to react to the developing situation. What worries them most is higher world prices, which make export more expensive.

Although, under the trade policy both import and export of lint cotton is free but what matters is the competitive import price. New York cotton futures, well above 50 cents per lb, take away competitive edge from us despite lower production costs, spinners said.

There was a virtual scare among the spinners and mills after the news reached the market. The physical business received a big jolt. Fears prevailed that the TCP’s higher prices could have sympathetic impact on other types of lint too, which had already touched the high mark of Rs2,450 per maund during the last couple of sessions.

“The TCP’s entry into the market may be good for the entire cotton trade, including the tillers but the timing is wrong”, one broker said, adding: “It should have deferred its operations for another month, to enable the textile industry cover its 80 per cent annual demand”.

The purchase price announced by the TCP for the contamination-free lint with a staple length of 1-1/32 inches from the registered model ginning factories in upper Sindh and southern Punjab cotton belt is Rs2,459 per 40kg.

A leading cotton broker has confirmed that the TCP has already bought modest lots from two ginneries of Sindh and Punjab at a fixed rate, which had an instant sympathetic positive impact on the local prices.

The TCP is expected to revise the rates in line with the international parity levels and there is a possibility that it may make forward sales to foreign buyers to avert an unforeseen losses.

At the same time, the TCP inventory could also be used as a buffer stock in case the crop is short and the spinners need additional supplies, market sources said.

The supply position may further accentuate as private sector exporters are also in the market and had so far purchased 0.110 million bales against the forward sales.