Source: Business Recorder

Recorder Report | 13 Oct 2021

KARACHI: The local cotton market on Tuesday remained stable and trading volume remained satisfactory. The rate of cotton in Sindh is in between Rs 12,000 to Rs 14,700 per maund and the rate of cotton in Punjab is in between Rs 14,300 to Rs 14,700 per maund.

Cotton Analyst Naseem Usman told Business Recorder that last week, APTMA - the mother ship of textile industry associations - endorsed GoPs' export target of $21 billion for the ongoing fiscal year. Achieving the target would be no small feat, considering it would require 36 percent growth over last year. Can it happen?

In the past 35 years, textile exports have only grown once before at such a high pace. Back in FY11, industry's exports grew from $10.2 billion to $13.8 billion, a giant leap of 35 percent. Unfortunately, the growth momentum proved fleeting, as sector exports under-performed over the following 10 years, barely struggling to average at $13 billion by FY20. So, how did exports grow by over one-third in one year back in FY11? Can it happen again?

If it does, will the growth momentum be maintained, or stagnate at the new base? One must step back in time to answer to those questions; and examine Pakistan's textile exports in the pre-2011 era. In November 2011, world cotton prices had doubled in less than 12 months on the back of phenomenal rise in global prices, quite like the one we see today. Although world cotton prices have so far not doubled over preceding 12 months, they very much appear to be traveling in that direction, especially with China entering international market as a strategic buyer to build its reserves (refer US ban on Xiangyang cotton).

Mean While, Value-added garment and home textile exporters have urged the government to abolish customs and regulatory duties on the import of cotton yarn as they are facing shortage of this vital input.

"The government must allow import of cotton yarn from across the world as it is a major raw material of value-added textile export industry," Pakistan Hosiery Manufacturers and Exporters Association Central Chairman Shahzad Azam Khan said, adding that the available cotton yarn was of substandard quality. Exporters were reluctant to finalise export orders due to the prevailing cotton yarn crisis, he said.

"In this scenario, such export orders will be diverted to other regional countries." Despite huge demand for cotton yarn in the local value-added industry, yarn manufacturers and spinners were seen exporting the raw material to regional countries.

"Yarn manufacturers are depriving the value-added textile sector of the main input and in the meantime passing the subsidy benefit, given by the government, on to regional competitors," he alleged.

Topline Securities analyst Saad Ziker termed these claims a true picture of the current situation in the industry. "There is a massive need for cotton in the industry," he said, adding that the value-added textile sector wanted to fulfill maximum export orders but they could not due to cotton shortage.

He underlined that their demand for cotton import from around the world was drawing a lot of criticism in the market, as textile was the largest contributor to overall exports from the country. Other regional countries such as India and Bangladesh were also recovering from the Covid-19 pandemic and trying to capture their lost share in orders.

ICE cotton futures dipped on Monday, as the dollar ticked up and market participants awaited a monthly supply-and-demand report from the US Department of Agriculture (USDA). The cotton contract for December was last down 0.78 cent, or 0.7%, at 109.82 cents per lb by 12:41 p.m. EDT (1641 GMT), recovering after dropping more than 2%.

Rogers Varner, president of Varner Brokerage in Cleveland, Mississippi, said investors are pausing ahead of the report tomorrow, as most of the recent move higher has been caused by perceived or real shortages in China, which needs to be confirmed. The USDA's monthly World Agricultural and Supply Demand Estimates (WASDE) report is due at 12:00 p.m. EDT on Tuesday.

Its weekly export sales report last week showed a dip in net sales. However, China has been the top buyer of US cotton in recent weeks, sparking a rally in cotton prices. Last week, the cotton contract struck its upper limit twice, and Friday's high was an all-time peak for the December contract.

The dollar strengthened to hold near a recently touched one-year peak, making the natural fiber more expensive for customers holding other currencies, potentially hurting demand. "The two markets that cotton follows sometimes are crude oil and copper and both of them are up, so that's part of the reason that cotton has come back sharply today from its lows, so that's a pretty good rally," Varner said.

Total futures market volume fell by 27,334 to 30,702 lots. Data showed total open interest fell 2,055 to 287,573 contracts in the previous session. The Spot Rate remained unchanged at RS 14,400 per maund. The Polyester Fiber was available at Rs 225 per Kg. (Source: Business Recorder)