Cotton prices surge to record high

January 11, 2022 (MLN): Following the most recent bull run in international prices, the price of cotton in the domestic market touched a record high of PKR20,000/mound despite a steady supply of commodity.

The price of the white fiber touched USc128/ pound on the international Cotlook-A index, last week due to a slowdown in arrivals in India and China as harvesting season nears culmination. The local cotton prices have moved in tandem and gone up by PKR2000/maund over the last week only.

Going by the recent research report by AKD Securities, the prices are expected to remain downward stick in the coming days as the harvesting season is close to a culmination where the total production for this year is likely to settle around 8.5mn bales as opposed to GoP’s target of 9.5mn bales and the new crop will likely hit the market towards the tail end of the 3rd quarter.

Jehanzaib Zafar, Head of Research at AKD hinted that textile and spinning mills are still doing gradual buying in the local market while ginners are also vigilant and expect further increase in the prices. These tightened positions taken by spinners and ginners pushed the trade volume on the lower side.

Another reason for the low trade volume is that an international organization is involved in the sale of cotton and the textile mills were approaching the organization to buy quality cotton. The organization's trade in the market was not reported, as per media news.

Due to this increase in commodity prices, more capital will be tied into the working capital and short-term loans of textile companies are likely to remain high. Given this inflated price, it is expected that many small textile players may face liquidity shortages and therefore struggle to meet export commitments. However, the attractive borrowing cost available on the EFF (3%) and the timely issuance of export rebates can somewhat help contain the risk, the research said.

The textile industry is facing unprecedented times where the commodity price has raised many challenges. However, owing to the plethora of incentives provided by the government, the industry has seen its profits grow significantly, it added.

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