Traders likely to shift United States for cotton imports

KARACHI: The US is likely to replace India as the major exporter of cotton to Pakistan in the current fiscal year after the commodity’s prices of the world’s second biggest producer increased, an industry official said. 

The country imported 2.5 million bales from India so far this year out of the total imports of three million bales to meet the shortfall.     “But, now the US is likely to emerge as the leading cotton supplier to Pakistan as its prices are competitive compared to Indian one,” Asif Inam, vice chairman at All Pakistan Textile Mills Association told The News.

The Indian cotton prices increased 35 percent within the last 15 days due to low sowing reports. The price is eight to 10 percent higher as compared to the international market. An official at the Pakistan Agriculture Research said local mills haven’t booked any more cotton from India and, “all have shifted to the US cotton.”  

Industry officials expect cotton production between 11.2 and 11.8 million bales for the current season subject to improvement in yield and no major pest attacks. The cotton harvest reached only 9.786 million bales during 2015/16 season ended in mid April against the previous year’s 14.863 million bales. The local consumption for the last year stood at over 14 million bales. 

The United States Department of Agriculture (USDA) estimated the crop inventory at 2.5 million bales, which will be adequate for the next two and half months. An analyst said local mills will not cancel Indian orders, but there is a possibility that sellers in the neighbouring country might cancel orders by paying the market difference. The US cotton is also affected by the current wave of price flair.

But, still Pakistan ranked as the fourth largest export destination of the US fibre, according to the data on the US export sales for the week ended July 7.    Local cotton prices surged at the seasonal high of Rs7,125/maund on Wednesday. The Karachi Cotton Association surged the spot rate to Rs6,650/maund.  

The spot rate at the Karachi Cotton Exchange sharply accelerated Rs1,000/maund since the start of the previous week. “The rally puts mills on panic as beginning stocks held by ginneries are on the decline due to tight supplies,” analyst Naseem Usman at KCA said. “The state-owned Trading Corporation of Pakistan has zero stocks.” 

Spinners halted production as heavy duties on commodity import and sharp rally in global and local prices brought up the prices. Mills have slowed down operations and approximately 100 mills have been closed due to non-availability of cotton caused by import duty and sales tax on import of cotton.  

“The one percent customs duty imposed by the government on cotton import is beyond logic in the backdrop of weaker crop last year,” Inam said.   Last week, the USDA lowered is estimates for global production in the 2016/17 harvest at 617,000 bales.

It also downgraded forecast for global cotton stockpiles next year to 91.3 million bales, down from 94.7 million bales projected in June. The decline in global cotton inventories is attributed to rising cotton consumption in China and lower cultivation in India and Pakistan.  However, the report expects higher production in the US due to better crop. The US exports are forecast to jump one million bales to 11.5 million bales in 2016/17. —Erum Zaidi