Cotton traders hail hedge trading resumption after four decades

KARACHI: Cotton traders are eager to participate in hedge trading to avert risk of price fluctuation in local and international markets after the government announced its resumption after four decades, industry officials said on Wednesday.  

Finance Minister Ishaq Dar, in his budget speech for the fiscal year of 2017/18, said the government would allow hedge trading of cotton after consultation with all the stakeholders. Karachi Cotton Association (KCA) welcomed the government announcement of resuming the hedge trading. 

Atif Dada, chairman of KCA said the association is fully prepared to resume hedge trading as it has a comprehensive infrastructure and adequate by-laws for this.  Officials of KCA, Pakistan Mercantile Exchange (PMEX) and other stakeholders will meet on Thursday (today) to identify ways to restart the trading.

Naseem Usman, chairman of Karachi Cotton Brokers Association said barring Pakistan all major cotton growing countries, including China, US, India and Brazil are using hedge trade to control price fluctuation. “It would ultimately benefit growers and they, in return, will go for growing more.”

Usman, however, said some stakeholders, who use the commodity as raw material, thought that cotton price would increase in the local market because of hedge trading and so they are against it.

Dada said cotton marketing involves a tremendous business risk. “It was, therefore, necessary that there should be some form of price insurance to reduce the risk of volatile fluctuation in prices,” he said in a letter sent to Hassan Iqbal, secretary of ministry of textile. 

In 2002, the commerce ministry constituted a committee to find out ways to start trading. The committee held various meetings, but all in vain. In 2005, the federal cabinet decided to resume hedge trading under the aegis of Karachi Cotton Association. “However, necessary notification of the government in this regard has not been issued to date,” Dada said.  

Three years ago, the government allowed PMEX to start cotton trading, but that was not made possible.  An industry official said PMEX did not have cotton delivery facility, while KCA wanted to start the trading on its own premise: Karachi Cotton Exchange. 

The association has 320 licenced cotton brokers, who have their own offices at the cotton exchange to facilitate trading with ginners, spinners and exporters.It also has a clearing house, survey room, sample room, trading hall, fiber testing laboratory equipped with high volume instrument spectrum and skilled and experienced manpower to run the hedge market smoothly and efficiently. 

KCA used to perform hedge trading in cotton since 1934. The government had suspended cotton hedge trading in 1976 in line with the nationalisation of export trade and establishment of Cotton Export Corporation of Pakistan in the public sector. 

“Since the last four decades, KCA has been urging upon the government to allow resumption of hedge trading in cotton for the benefit of all segments of the cotton trade,” Dada said.