Over the past few weeks, there has been an upward trend in cotton prices as a result of the government’s decision to enter the market, the dollar’s rise making imported cotton less profitable, and issues with quality and arrival shortages.
In Punjab and Sindh, prices of seed cotton (Phutti) have exceeded Rs. 9,000 per 40 kg, while in Balochistan, they have crossed the threshold of Rs. 10,000.
Phutti prices in areas such as Bahwalnagar, Bahawalpur, Faisalabad, Toba Tek Singh, and Haroonabad are currently ranging from Rs. 8,600 to Rs. 9,400 per 40kg.
Meanwhile, in Rahim Yar Khan and Chichawatani, the peak rate has surged to Rs. 9,375 per 40kg. In Balochistan, particularly around Khuzdar, seed cotton is already being traded within the price range of Rs. 9,200 to Rs. 10,000 per 40 kg.
Karachi Spot Market prices have also peaked at Rs. 21,150 as of today after remaining stable at Rs. 20,829 for a few days, posting a 10 percent increase this month.
While it’s encouraging to see trade activity ensuring the right prices for cotton growers who were struggling to get even the support price of Rs. 8,500, a few buybacks from the textile sector also highlight the future export potential.
Also, another factor that could contribute to the rise in prices is the threat to the cotton crop in South Punjab due to the Sutlej River flood, which has inundated more than 100,000 acres in Bahwalnagar alone, according to media reports.
The flood conditions in Sutlej are worsening with every passing day with more than 370,000 people evacuated per media reports while India is expected to continue releasing water from Bhakra and Pong for a few more days which can put the situation out of control in no time.
So the question remains, How long will this rally continue?
“Bad news about the economy, rumors of PKR/$ crossing Rs. 330 and issues with opening LCs and shortage from arrivals from fields to ginning are making the mills procure cotton.”, stated Awais Tariq from Neelum Corporation talking to ProPakistani.
On the other hand, internationally, US Cotton Futures have declined by nearly 34 percent YoY from $117 per pound a year ago but have recovered in the past month by some 14 percent from their low of $79 per pound on June 27th to $87 per pound at the moment and it’s also causing domestic buyers to source cotton locally.
Prices have recovered as the United States Department of Agriculture (USDA) has trimmed the global production forecast by 2.7 million bales for 2023-24 which can potentially outweigh the impact of a sluggish rebound from China. In that context, international prices are expected to trade higher by the end of the year at least in comparison to the previous year.
One more factor that is making imported cotton less lucrative for the Textile sector is the rise in Crude prices which is causing the rise in shipping costs. The traders talking to ProPakistani expected the seed cotton prices to go as high as Rs. 10,000 per 40kg in Punjab as well if the rupee devaluation persists.
“The rise in cotton demand seems temporary due to the increase in USD and lack of arrivals, buyers are making panic buying”, stated Talha Qureshi, Cotton Procurement Manager at Siddiqsons Group talking to ProPakistani.
He said that with such a high cost of production and interest rates, it’s not viable for all businesses to stock cotton at this price level of Rs. 20,000+. The market will eventually come lower down eventually and settle around Rs. 18,500 to Rs. 19,000.
Borrowing costs are all-time high and KIBOR is expected to rise future which means an increase in cotton prices will definitely put spinning mills under pressure as their cost of production will be increased. While farmers and ginners may benefit if business remains steady, only the mills with good financial muscle, minimum operational costs, and good exports will survive.
Source: ProPakistani
