13 June 2004	Sunday	24 Rabi-us-Saani 1425

KARACHI, June 12: Ginners, spinners and cotton traders on Saturday welcomed the sales tax waiver on the ginned cotton as it would enhance the competitiveness of the textile sector on the world markets and give the needed boost to exports.

During the last couple of years the spinners had to pay 15 per cent sales tax at the ginner level on lint, which the ginners had to deposit in the banks after adding to the sale price.

Although, the sales tax amount was refunded to the textile sector against its export invoices but it has typical problems associated with the Pakistan tax refund culture, says a leading spinner.

Moreover huge refund amounts remained blocked in the official kitty, having negative impact on their liquidity, limiting their capacity to build-up strong stock position to cover price risks, some others said.

But some others claim imposition of sales tax on cottonseed will have a chain of negative impact on the edible oil sector and in turn the general consumer.

The trading activity in the post-budget trading sessions is expected to pick up on the cotton market as spinners have the leverage they needed to be more competitive.

In the pre-budget session, trading remained terribly insipid as spinners and ginners did not make fresh commitments hoping some incentives for the cotton and textile sector.

But the future price outlook was bullish based on falling unsold stocks with the ginners rather than incentives in the budget. As a result, ginners who were holding an unsold stock of 0.4m bales were a little worried over its sale.

"Monthly intake of the organized mill sector during the current season is averaging about 0.950 bales and the unsold stock lying with the ginners is barely enough for about two weeks", says a leading broker.

Spinners were, however, worried as owing to a short crop they were at the receiving-end since the last six months as they had to make up the shortfall through imports.

"The world textile export outlook is relatively better but highly erratic prices of lint the world over has taken the price advantage from us," spinners said.

They had so far imported about 1.4m bales of cotton from various sources to make the local crop shortfall and another 0.250m bales were claimed to be on their way before the new crop arrives from the lower Sindh cotton belt on the market.

"The important factor is that bulk of the foreign stuff was imported on an average price of 66 cents per lb," they said adding "the current decline of New York cotton futures below 60 cents per lb came at time when we have already met our annual consumption needs".

Market sources say doubts are also being expressed by the spinners about the new crop owing to shortage of irrigation water as late sowing is prone to pest attacks.

Some of the leading spinners and mills who had no liquidity problems were said to be building up a buffer stock for the next year below 60 cents per lb in an apparent effort to face any possible shortage of the new crop.

It was in this background that physical trading remained dull as spinners decided to resume normal operations after the budget.

Official spot rates were again firmly held at the last levels in line with the average ruling price for the last couple of sessions.