IN line with the declining global commodity markets, cotton prices in Pakistan are also falling. The local cotton slumped to under Rs3,000 per maund (37.32kg) on Nov 13 from Rs3,300 a week back. Seed cotton is available for Rs1,400 to Rs1,500 per 40kg.

With December cotton weakened to just above 39 cents per pound in New York, the domestic prices are feared to depress further.

“The New York cotton was 85 cents per pound in January and was growing. It was forecast at that time to hit one dollar,” said a textile miller, who refused to give his name.

The declining trends have forced the ginners and farmers to call for immediate government intervention in the market to stall any further erosion in the domestic prices.

“The government should intervene in the market immediately. Any loss of time means the growers won’t be able to recover even their cost what to talk of making profit,” says AgriForum Pakistan chairman Ibrahim Mughal.

A summary proposing minimum support price of Rs3,500 per maund has already been moved for approval of the prime minister, Mr Mughal said. Once the summary was signed by the premier, it would pave the way for the Trading Corporation of Pakistan (TCP) to start procurement from market to support the prices, he added.

The growers’ cost of production had gone up to Rs1,500 per 40kg from last year because of higher fertiliser and diesel prices, says Mr Mughal. “That means the farmers are losing money at the current market price or hardly breaking even,” he argues.

He fears that the farmers could turn to other competing crops next year if they did not get fair profit on their cotton. “Already the area under cotton has come down to 7.5 million acres from eight million acres last year due to reduced profitability,” he insists.

But the textile millers don’t agree with him, saying the growers had to spend less on pesticides this year because the disease attack was not intense. Moreover, the yield per acre is believed to have improved as indicated by higher early arrivals.

Against the fears of a bad crop, the 24 per cent increase in early arrivals to 5.258 million bales by November 1 from last year’s 4.235 million bales show a healthier crop this year. The crop size is expected to be around 12.6-13 million bales this year against 11.66 million bales last year, but will still miss the target of 14.2 million bales for the year.

Therefore, they insist that the TCP intervention in the market will be uncalled for and damaging for the trade.

“You shouldn’t try to prop up prices through artificial mechanism. That distorts the market,” says Tariq Mahmood, chairman of the All Pakistan Textile Manufacturers Association’s committee on cotton.

“It is an extraordinary year for all of us. The commodity prices are plunging across the board on fears of global recession on the back of financial crisis in the United States and Europe. Yarn rates are also down. Any distortion in the domestic cotton market may hit our textile exports to these destinations,” he argues.

Another miller, who wished anonymity, pointed out that Indian mills had begun importing Pakistani cotton since their government fixed a minimum support price for the local crop to support its farmers.

The exporters had lifted 1,57,000 bales by Nov 1, up by 202 per cent from last year’s 57,000 bales, indicating increasing demand for Pakistani cotton in India.

“We shall also have to look for other sources in the market to get cheaper raw material if the TCP intervenes,” Tariq warns.

Pakistan’s cotton imports have declined in the first quarter of this year to below $158 million from around $180 million last year due to its reduced international prices and arrival of fresh domestic crop.

The spinners had lifted 3.645 million bales at the start of this month, up by 18 per cent from 3.089 million bales last year, and total sales of ginners had risen by 21 per cent to 3.802 million bales from 3.141 million bales. Still the unsold stock with ginners has piled up by 49.23 per cent to 6,30,000 bales from 4,22,000 bales.

Unginned cotton stocks also went up just below 23 per cent to 8,26,000 bales from 6,72,000 bales.

The major reasons for the piling up of the ginners’ unsold stocks is said by an Aptma official to be the delay in the approval and release of cash limits to the mills for commodity purchase by banks. (Tariq points out that the banks are reluctant in approving cash limits to the millers for cotton because of the volatility in the commodity’s prices. “The bankers don’t want to approve limits against higher cotton rates to find the price crash next morning.”)

“Moreover, the energy crisis -- power cuts and gas shortages, which has led to closure of 25 per cent spinning capacity over the last few months -- is also keeping the millers from procuring cotton actively,” the Aptma official says.

He claims that the spinners’ yarn inventories had also risen owing mainly to the closure of power looms in Faisalabad because of power shortages for weeks and they were finding it difficult to run down their yarn stocks. Textile exports were down to $2.722 billion in the first quarter of the fiscal year from $2.740 billion last year. The exporters blame energy shortages and rising cost of doing business for the decline in exports.

“With China focusing on other sectors, and textile industry closing in the United States and Turkey, our industry is in a strong position to take advantage of the current global situation and enhance its share in global textile trade. But that requires the government to do a few things -- truly zero-rate exports and ensure uninterrupted power and gas supply to the export-oriented units,” says Shafqat Elahi, former Aptma chairman.

“Imagine global textile and clothing trade growing to $800 billion from the current $400 billion in a few years and Pakistan increasing its market share from 8-10 per cent from the present two per cent! If we don’t fill in the gap some one else will,” he says.—Nasir Jamal