COTTON prices on the local market firmed in early September due to increased buying and a spike in US prices after two powerful hurricanes, Harvey and Irma.

But as US prices softened after fears for extensive damage in cotton-growing states subsided, a reflection of it was seen on the local market as well. As a result, ex-Karachi cotton spot rate fixed by the Karachi Cotton Association (KCA) fell to Rs6,639 per 40 kilograms on Sept 12.

On Sept 11, the spot rate was Rs6,742, which was Rs210 higher than the price quoted exactly two weeks ago, ie prior to the Harvey and Irma impact on US cotton prices. The average US cotton price eased to 71.73 cents per lb on Sept 11 after hitting a high of 75.59 per pound on Sept 8 amid fears Hurricane Irma could damage the crop.

It is difficult to say at this stage whether we are going to get 12.6m bales or 13.75m bales or even more, cotton traders say

Market sources say the easing of prices on the New York cotton market, for the time being, has halted the constant upward movement in local prices seen between Aug 28 and Sept 11.

However, cotton prices may remain firm because of the impact of end-August and early September rains in Sindh and brisk local buying, which is due to gather momentum in the coming weeks and months, brokers say. Some of them, however, expect prices to remain range-bound until spinners start big purchases.

Even before rains, the Cotton Crop Assessment Committee (CCAC) scaled down its output estimate from 14.1 million bales (1 bale = 170kg) to 12.6m bales in its Aug 10 meeting.

However, in the same meeting the committee took note of the encouraging field reports regarding a 5.7 per cent rise in per-acre plant population and up to 40pc increase in balls per plant.

Based on those reports, the committee’s chairman, Hassan Iqbal, was hopeful that the eventual cotton outlook would improve and said production could even touch 14.1m bales.

But that assessment was made before early September rains in Sindh. Field reports from Sindh now suggest that rains have affected the cotton crop.

So, it is difficult to say at this stage whether we are going to get 12.6m bales or 13.75m bales (as is now being speculated after encouraging reports coming from Punjab cotton fields) or even more, cotton traders say.

Market sources say the easing of prices on the New York cotton market halted the constant upward movement in local prices seen between Aug 28 and Sept 11

Initially, Sindh was expected to produce 4m bales of cotton during this year. But due to the fact that only 94pc of the sowing target could be achieved and rains have affected cotton crops in several districts, actual production may remain somewhere between 3.6 and 3.8m bales, according to an official of the Sindh agriculture department.

In Punjab, too, cotton output is likely to remain below the original estimate of 10m bales but somewhat higher than the Aug 10 estimate of 8.9m, according to sources in the cotton market.

“Cotton prices are expected to remain firm at their current levels or they can even rise further if China starts imports,” another KCA official says, referring to media reports about possible purchase of Pakistani cotton by China.

On the other hand, demand from the local textile sector should also remain higher this year than the previous year given the fact that the textile sector is making all-out efforts to boost exports.

Pakistan’s total exports in July and August rose 13pc in dollar terms, according to the revised data of the Pakistan Bureau of Statistics. It is safe to assume that textile exports have risen too. This would be confirmed shortly after the release of detailed stats.

Some cotton brokers point out that even after a cut in forecast by the CCAC, the prices did not move up because spinning mills whose cotton yarn and fabric sales had slumped last year were cautious in making large purchases.

In fact, prices fell by up to Rs500 per 40kg in the two weeks to Aug 18 on slow local buying amid the beginning of seed cotton arrivals from Punjab.

Yarn and fabric manufacturers have accelerated their buying, which is expected to gain momentum as those manufacturers who were initially cautious in buying may come in for big purchases after the softening of prices from Sept 12, cotton brokers say.

But it would be interesting to watch price movements after the release of the latest report of the International Cotton Advisory Committee (ICAC), which has forecast 4.35pc increase in global cotton output (to 25.14m tonnes in 2017-18 from 24.9m tonnes a year ago) despite the impact of Hurricane Harvey.

The report talks about a 17pc rise in Pakistan’s output compared to last year. However, since our last year’s output remained low, at 10.726m tonnes, such a rise would be insufficient to cover our local demand, particularly amid hopes of a revival of textile exports.

Besides, the ICAC report talks about a 16pc decline in China’s cotton reserves. That’s why it is being anticipated that China may resort to imports and Chinese buyers may look towards Pakistani or Indian markets.

Published in Dawn, The Business and Finance Weekly, September 18th, 2017

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