KARACHI, May 22: The Karachi Cotton Association (KCA) opposed the introduction of International Cotton (ICOTTO) futures contract at Pakistan Mercantile Exchange Ltd (PMEX), stating that the decision has been taken by the government without adequate consultation with industry stakeholders.

The KCA observed that the PMEX cotton contract is based on the New York cotton futures contract and is a cash settled contract, that is delivery is no contemplated.

It was been claimed that this contract will provide hedging facility for all those who are involved in various activities in cotton value chain. At the same time PMEX stated that trading is not based on local cotton. This is an apparent anomaly as both claims were contradictory.

The KCA further stated that it is wroth noting that US cotton comprises only about 15 per cent of the world crop and only US cotton could be tendered in New York futures contract. Hence, it is not understandable as to how NY futures market will provide any kind of risk mitigation for Pakistan.

The KCA a pre-partition trading body in cotton also challenged the PMEX claims that their contract is based on NY futures contract. It has stated that NY futures are deliverable contracts whereas PMEX contract does not involve physical delivery.

Furthermore, it stated that cotton surplus economies like Australia, Brazil and India have yet to introduce NY Futures Contracts whereas PMEX in its wisdom has decided to introduce this contract in a cotton deficit country.

The KCA in a written statement issued by its Secretary General Yonus Husain Khan further stated that apparently this is merely an attempt to allow speculation and gambling in cotton market which might yield benefit to the vested interest but will destroy the farmers, ginners, and the consumers of raw cotton.

It stated that cotton and cotton products contribute 60pc of the total exports of the country and such experiments may well destroy the whole economy.

The KCA noted that realising the need, utility, benefits and advantages of Hedge Trading in cotton which involves delivery of cotton at the time of maturity of the contract, the federal cabinet in its meeting held on 24-03-2005 decided to resume hedge trading in cotton under the aegis of the KCA. However, it is surprising to note that instead of allowing hedge trading in cotton Pakistan the government has allowed to introduce ICOTTON futures contracts due to some mysterious reasons to provide benefits to the vested interests at PMEX.

The association urged the government to order an enquiry into this spurious decision and to suspend the notification issued for introduction of PMEX ICOTTON futures contract in order to discourage speculations and gambling in the cotton market and safeguard the interest of cotton economy as well as national interest.