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Cotton and textile economies may face hard days in 2012

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Economic Updates - Pak Major Financial News

In a recent meeting of the Cotton Crop Assessment Committee (CCAC) held in Multan, a controversy over assessment of cotton crop of 2011-12 season was developed between the Pakistan Cotton Ginners Association (PCGA) and the CCAC.

The PCGA's view point was that PCGA was expecting a crop of 14.0 million bales, as by 15th January-2012, seed-cotton equivalent of 12.829 million bales have reached ginning factories.

The CCAC rejected the viewpoint of PCGA and PCGA people walked out in protest thereof.

The CCAC reportedly said that initial crop size was estimated at 14.01 million bales, which was later revised down to 12.2 million bales due to heavy rains and flash floods in the country.

The CCAC now estimated crop of over 12.598 million bales of standard weight 170-Kg each.

As a matter of fact, dispute is over average weight of bale.

As per Karachi Cotton Association rules and bylaws, net average weight of Pakistani bale should be Kgs 170 with (+/-) 3 percent variation but it is not in practice.

The ground reality is that average weight of 100 bales of cotton vary widely generally between 12000 Kgs and 18000 Kgs.Sometimes, a bale carries cotton weight as low as below 100 Kgs.

In previous seasons, net average weight of bales was found between 150-155 Kgs each.

The assessment of cotton crop is made on the basis of number of bales, which some time vary season to season.

The international standard unit for mentioning size of cotton crop is Metric Tone (1000 Kgs) but average bale weight vary from country to country.

Pakistan's crop size should also be mentioned in Metric Tones converted into number of 170-Kg bales, as is the practice in India.

On the basis of seed-cotton arrivals and other expected seed-cotton arrivals, the size of cotton crop is estimated between 14.0 and 14.5 million running bales with average bale weights between Kgs.

150-155.In exports and import of raw cotton bales, net weight of bales in metric tonnage is taken on the basis of valuation of the consignment irrespective of number of bales.

All the stakeholders mainly comprising of Pakistan Cotton Ginners Association (PCGA), All Pakistan Textile Mills Association (APTMA), Cotton Exports and Government officials should discuss the matter of average weight of cotton bale and take a necessary decision so as to avoid any confusion on the size of cotton crop.In the local market, cotton prices maintained steady to firm trend in the last couple of weeks but in the end of the last week, cotton prices softened on slow buying interest and lower advises from New York cotton market.

Better quality lint cotton, which had fetched Rs 6,000 in early last week was selling at Rs 5,800 and low grades down to Rs 4,300 per maund ex-gin.

By the end of December-11, the exporters are reported to have sold in exports some 556,510 bales, which by the end of January-12 month may reach between 750,000 and 800,000 bales.

This time India has bought major share of low grade cotton.

It is estimated that total exports of this season may be around one million bales and our raw cotton imports, which by Dcemeber-11, are 47,855 m/tons = 281,500 bales of 170-Kg each in five months, may reach about one million bales by the end of season.

Thus our cotton exports may be equal to season's raw cotton imports and entire local cotton crop would be available to local spinning industries.

Pak Rupee, which has crossed the level of Rs 90 a Dollar, may lose its value further, which may help in exports but we have limited export goods.

Major item of our export is raw cotton and textiles but the severe crisis of gas and power, increasing cost of utilities and other factors are constraints in cotton and textile exports.

Actual domestic consumption of two months (August and September-11) reported at 2,345,705 local weight bales and on this basis annualised domestic cotton consumption works out to 14.07 million bales.

This analyst is of the opinion that the mill-use may decrease in coming months and by the end of this season it may be around 13.5 million local weight bales.

The unsold cotton stocks of 1.45 million bales by the end of 15th January-12, held by the ginners may come down between 1.0 and 1.2 million bales by the end of January-12.

In the end of the season, the ginners may hold substantial stock of unsold cotton consisting of mostly low grades of which disposal in the local market may be difficult.

However, in export such low-grade cotton may find buyers especially from India, Thailand and Vietnam countries.In view of escalating cost of production including increase in utility bills and due to severe power shortage in the country, deteriorating law and order situation and unstable political situation, the textile industry especially the large power loom and garment sectors may be more affected adversely.

The concerned trade circles fear that total exports of textile and clothing in FY 2011-12 may be lower between $ 11.0 and 12.0 instead of $ 14.0 billions and season's total exports may be between $ 21.0 and 22.0 billions instead of 25.0 billions in FY 2010-11.

The economic and financial indicators point towards poor performance of economy in FY 2011-12.

In view of our currency losing its value against Dollar, our imports may increase proportionately thus increasing trade deficit, which may further pressurise economy and make life costly.

In January-12, month, value of Indian rupee against Dollar downed to over IRs 53 a dollar but Indian Government took necessary corrective measures and improved its currency value to IRs 50 a Dollar level.

Bangladesh currency BD Takka is also losing its value against Dollar and is now around 85 level.

The continuing financial crisis in US and in Eurozone is not only affecting the economies of the West but is also impacting the emerging economies of the East.

The economies of some important member countries of European Union are under heavy pressure of external debts and their debt to GDP ratio has gone out of proportion rather burst.

As per March 2010 report of Black Swan Capital, these countries are Portugal -229.7 percent, Spain -156.7 percent, Italy 125.6 percent, Ireland 294.0 percent, and Greece 190.7 percent.

Collectively the economies of these five countries represent approximately 33 percent of the entire Euro zone economy.The financial rating of important member countries of Euro zone has been down graded in view of difficult rather deteriorating economy conditions and severe default appears a reality.

Germany's incentive to remain in the European Monetary Union are fading fast; they are now playing hardball but their growth is in jeopardy, the report adds.

One reports says that Euro is losing fast its value against Dollar and in the near future not Dollar may become stronger than Euro but Euro would become weaker than Dollar.

In the words of WTO Press Release 628 dt.

7th April 2011, although the growth of world exports in 2010 was the fastest on record since 1950 at 14.5 percent in terms of volume, it might have been even faster if world trade had quickly reverted to its pre-crisis trend but this did not happen.The rebound was strong enough for world exports to recover their peak levels of 2008 but it was not strong enough to bring about a return to the previous growth rate.

Developed economies recorded growth of 13 percent in 2010, while China's exports increased in 2010 by a massive 28 percent in volume terms.

The 3.6 percent growth rate of world GDP for 2010 may be termed robust, as between 1990 and 2008, average growth rate was 3.1 percent but in many years the GDP growth equalled 4 percent in 1977, 2000, 2004 and 2006.World trade in 2012 may continue to fight against world recession and Euro debt crisis and by adopting serious austerity measures especially in US and European union countries, the dents on world economy may not be removed to some extent.

Courtesy: Business Recorder

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