KARACHI: The leading buyers made deals for better and second grade lint at slightly higher prices while shrinking better grades put price in the comfort zone on the lint market during the past trading week, dealers said.
The Karachi Cotton Association (KCA) spot rate stayed firm at Rs 6,650 per maund with moderate volumes, while leading buyers made deals with ginners of Sindh and Punjab at competitive prices.
Floor brokers said mills and spinners of Sindh and Punjab remained engaged in a price war with the ginners on issue of better lint. Demand for the produce kept market sentiments firm despite shrinking domestic stocks.
The ginners of Punjab and Sindh offered lots at around Rs 6,000 per maund and Rs 6,600 per maund to the buyers, while Sindh ginners offered their raw produce at competitive prices at Rs 5,975 per maund depending on trash level during the past week.
The quality lint of Punjab fetched above Rs 6,700 per maund while the raw cotton of Punjab was traded around Rs 5,975 per maund depending on trash level for most of the trading sessions.
A senior trader, Ghulam Rabbani said market sentiments remained positive during the past week, while ginners withholding fine lint were confident that the spot rate would go up further, after some recession in the coming days.
However, with higher inflation looming, cotton prices should continue to move higher over the longer term on the domestic and international front.
On Saturday, the last trading day of the week, the spot rate remained firm and buyers made some forward deals for a month period above Rs 6,425 per maund. In the domestic market 200 bales of Mirpurkhas changed hands at Rs 6,375 per maund, 200 bales of Multan at Rs 6,300 per maund and 200 bales of southern Punjab at Rs 6,400 per maund.
Last night in New York futures market, March 2017 closed at 74.73 cents per pound, while May 2017 closed at 74.96 cents per pound. The Cotlook A index settled at 81 cents per pound.
The US Department of Agriculture (USDA) forecasts substantially higher production with a moderate increase in consumption. Global production is estimated at 104. 35 million bales (1 bale = 480 pounds) in 2016-17 compared to 99.54 in 2014-15, up 4.8%. The likely increase in production is largely attributed to US, India, and Pakistan. There aren’t any major increases in acreage, but extreme weather conditions and pest attack of last year that negatively impacted crop yields are not anticipated in 2016-17. In 2016-17, the USDA expects US cotton production at 14.8 million bales, India at 28 million bales and Pakistan at nine million bales, which are 15%, 4%, and 29% higher than 2015-16 figures, respectively. However, Brazil and China are likely to have lower production. China’s cotton production has been pruned for a third consecutive year to 23.8 million bales in 2015-16 and 22.5 million bales in 2016-17. The slide comes in the midst of lower price realisations (cotton prices lost 30% in 2014), reduced support prices and increased preference for foodgrain crops.
Global consumption: The USDA estimates global cotton consumption at 110.78 million bales in 2016-17 compared to 109.02 million bales in 2015-16. China’s cotton consumption (use of cotton by mills) had gone down in recent years on account of factors like higher domestic prices, falling man-made fibre prices and overall industrial slowdown; and no major upturn is expected. However, cotton consumption in China is expected to grow slightly in 2016-17 on lower domestic prices. China’s plan to auction two million tonnes of cotton began on schedule on May 3 and will run through till August end. The International Cotton Advisory Committee (ICAC) estimates that China’s auctioning of its cotton reserves will reduce Chinese stocks to a five-year low at 2008-09 level. China has also expressed its intention to purchase high-quality cotton from international markets between September and February to improve the quality of its reserves. This creates doubts over the quality of existing stocks. Reduced Chinese import hurt India’s cotton exports, prompting India to focus on alternative export destinations, such as Bangladesh, Vietnam, and Turkey.
Domestic scenario: The USDA expects India to harvest 26.8 million bales of cotton in 2015-16 against 29.5 million bales in 2014-15, down almost 9%. However, local sources expect India’s cotton production to decline 17% to 33.5 million bales (1bale = 170 kg) in 2015-16 due to whitefly and cotton leaf curl virus attack in northern India. Traders estimate total cotton availability at 40.1 million bales with total consumption at around 39.2 million bales for 2015-16, which would leave a surplus of nine lakh bales by September. However, carry-forward stock from the 2014-15 season was 5.5 million bales as opening stock for the 2015-16 season. Domestic prices are strong amidst reports of significant crop loss, firm export demand, and positive global cues. The Cotton Corporation of India has reduced the export forecast to 6 million bales from 6.6 million bales forecast earlier amid firm domestic prices.