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Rising cotton yarn prices perturbing local textile sector

By Tanveer Ahmed

KARACHI: The continuously rising prices of cotton can hurt the local textile sector as analysts and exporters anticipate further rise in the domestic cotton prices because of active buying by the international buyers who have flocked Pakistan amid a shortfall in world cotton production.

With increasing demand from international buyers domestic cotton prices will remain high in near future, analysts predicted. Domestic cotton prices have already surged by 21 percent since the start of the current fiscal year.

On the other hand, exporters complained that raw cotton export has even caused shortage for the power looms and if the situation persisted in the future, textile mills would cease operating in new two to three months.

Although, local cotton production has been projected to be higher in the current season, the unbridled export of raw cotton and cotton yarn has become major sources of worrisome for the local value-added sector.

The government has set a target of 12.5 million bales for the current fiscal year as compared to 11.3 million bales last year. Increased usage of new BT cottonseed has allowed high levels of cotton production during the current fiscal year.

As per the latest numbers released by Pakistan Cotton and Ginner Association (PCGA), cotton arrivals have depicted a 40 percent YoY increase to 7.3 million bales. Though recent numbers have been encouraging, cotton experts still believe cotton production to fall below the government’s target of 13.3 million bales.

Amid shortage in world cotton production, demand for local cotton and yarn in the international market is on the rise; hence the recent hike in the domestic cotton prices. As per the International Cotton Advisory Committee, world cotton production is expected to fall by 5 percent to 103 million bales. China’s cotton production is likely to hit the most with cotton production expected to decline by 16 percent YoY due to lower acreage and unfavorable climate conditions. Domestic cotton prices currently stand at Rs 4,000 per maund.

Although on an average basis prices have depicted a decline of 9 percent YoY to Rs 3,467 per maund. Cotton prices have picked up pace over the last couple of months and currently stand at around Rs 4,000 per maund.

With increasing demand from international players, like China and India, analyst Bilal Qamar at JS Research expected the prices to hover in the range of Rs 4,000 to Rs 4,100 per maund despite an 11 percent production growth expected in FY10. Currently, international cotton prices are hovering around 70 cents per lbs or Rs 4,800 per maund. Relatively lower domestic cotton prices have allowed international cotton buyers to remain active in the local market

As a consequence, local prices have already jumped by 21 percent since July 2009. However, ongoing talks regarding the ban on exports of cotton and yarn have somewhat eased pressure on the rising cotton prices, Qamar added.

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