Market Report – Pakistan 5th Aug 2019

Local Cotton Highlights:

• Last week, in the local cotton market, textile mills and buyers kept away from buying and didn’t express much interest. Bad effects of rains in cotton growing area and downward trend of NYCF prices along with an additional 10% tariff imposed by the US on Chinese imports had affected the overall decision making of the buyers. Additionally, the non-availability of transporters vehicles due to busy Eid Al Adha days ahead affected the supply of cotton. New taxation system for traders introduced in budget kept businesses confused, so they hesitating in making new deals.
• Cotton prices fell sharply in the the local market during the end of last week’s trading session. Rates of cotton lost approximately Rs 200-300 and it appeared that prices may further decline ahead of Eid-ul-Azha holidays. NYCF downward trend also influenced on local cotton market. The Karachi Cotton Association (KCA) spot rate (2019-2020) decreased Rs.100 and closed at level of 8400 per maund.
• Global markets are also experiencing state of recession as the US has imposed additional 10 per cent tariff on imports from China thus making the economic conflict between US and China more complicated and intense instead of its resolution. It will also lead to decline in prices of cotton in international markets as New York Cotton witnessed a decrease of four US Cents bringing the price below 59 cents per pound. Chinese Cotton witnessed a decline of more than 300 points while the Indian market is also in recession. Increase in tariff and US-China conflict will make a negative impact on global business and thus will also impact the local cotton, leading to more decline in the prices. China will prefer Pakistan over the US to import cotton but Chinese require high-quality cotton so they will prefer India or Brazil.
• Imposition of 10 per cent sales tax is creating numerous problems and mills have to pay this tax through ginners. This has created the apprehensions of liquidity issues for the mills as their money will be stuck with the FBR. Delay in the payment of refunds and increase in the interest rate which is at 13.25 per cent right now may render the mills unable to have huge stocks of cotton. While ginners will also be very cautious in keeping the stocks, which may lead to a further fall in cotton prices as both buyers and ginners will not be able to have heavy stocks.
• Prices of seed cotton (Kapas/Phutti) for the new crop (2019-2020) in Sindh were in range from Rs 3500 to Rs 3900 per 40 Kgs and new crop phutti is available from Sindh in range from Rs 7800 to Rs 8350 per maund (37.32 Kgs).
• In Punjab prices of seed cotton was in range from Rs 3800 to Rs 4000 per 40 Kgs and new crop phutti is available from Punjab in range from Rs 7800 to Rs 8400 per maund (37.32 Kgs). Overall deals were made between the range of USC 60~64 Lbs. (7,800~8,400/ maund).

New York Cotton Futures:

• New York Cotton futures opened on lower levels on Monday as compare to previous week’s closing figures.
• NYCF showed downward trend in this week, although minor rose was observed in one session but overall showed week trend, therefore closed on negative side by the end of the week.

At last day of the week, OCT 2019 closed at 58.94 with decrease of 483 points.

At last day of the week, DEC 2019 closed at 59.42 with drop of 479 points.

At last day of the week, MAR 2020 closed at 60.71 with downward of 448 points.

Liverpool Index:

A was opened at 75.40 with same level from previous week’s closing figure.

• In this week Index “A” rose in next session, while dropped in whole week and at the end closed on negative side.
• At last day of the week, LPI “A” closed at 74.80 with decrease of 80 points as of opening figure of the week.

Crude Oil:

Crude Oil prices opened at USD 56.87 with higher level as compared to last week closing figures.

• In this week, crude oil prices rose in next two consecutive sessions later dropped radically, hence, recovered slightly in closing session but closed on negative side at the end of week.
• In last day of the week, Crude Oil price closed at USD 55.66 with decrease of USD1.21 cents as of opening figure of week.

Pakistan Currency Exchange Rates

• In last week values of Pak rupee apricated against US Dollar’s, other major currencies showed mix trend in both Interbank and open markets.
• At the end of week, Euro closed on a negative note with figure of 1.11 and British Pound also closed on negative note with figure 1.22 against USD.

Local Yarn:

• Local yarn market remained stable in asking and limited sale made during last week ended. Most of mills were ready to make cash sale for immediate lifting to avoid stock caring. On the other hand, buyer was buying only their immediate required quantity and was not in hurry to book forward yarn.
• PSF price dropped by Rs.5/kg in domestic market dated 29^th July, 2019. Import fiber polyester dropped in international market which cause to drop local fiber prices. PTA, MEG price remains stable during this week, crude oil graph in International market also remained stable for this week.
• Faisalabad trading market remained close in term of sale and no yarn buying reported from mill. Some cash sale made without ID card copy but in very limited numbers.  Faisalabad based unites cut their production and trying to sell in register sector for some counts.

Following are current asking prices of yarn in local market based on ex mills:

Export Yarn:

• Market remained under nominal business activity. Over all customers floated handsome numbers of enquiries but order materialization remained limited. Major reason is the indecisive mindset of customers as despite of showing flexibility by suppliers, customers are not placing orders in bulk.
• Limited number of orders were placed at very attractive prices from suppliers. Suppliers are quite flexible in negotiation of prices and in presence of any bid, they try to grab the order. Major reason is that this is cotton buying season and supplier is not in a position to hold the stocks. Hence, they will keep on selling to get order.
• At the same time, US- China trade war is once again hitting cotton market after another imposition of 10% duty by US on Chinese products. This has given immense pressure to cotton market and NYCF has been dropped drastically on closing of last week.
• Hence, we might see market under nominal business activity with soft market sentiment.
• HK customers remained silent and no such activity has been witnessed. European customers floated good numbers of enquiries. It is expected that there will be good activity from European market in days to come as they might place good numbers of orders before going on holidays.

Local Fabric:

• The Local fabric market remained slow but steady trend reported throughout the week for both widths narrow and wider.
• Weavers received relatively reduced flow of inquiries from buyers and against those confirmed limited orders for both narrow and wider width looms. Weavers are showing desperation of orders for narrow width looms and offering mid-September ~ 3^rd week September onward deliveries whereas weavers have comfortable booking in hand for their wider width looms and offering end September/early October onward deliveries.

Local fabric prices of regular items are as follows:

20×16/128×60=63”at USD 1.10 to 1.12 per yard, 16×12/108×56=63” in range of USD 1.19 to 1.21 per yard and 20×20/108×58=63” was sold in range of USD 0.92 to 0.94 per yard based on ex mills.

Export Fabric:

• Far eastern markets remained slow and dull during the week under review. Customers are not taking interest in fresh buying rather most of the customers are holding their ready goods and keeping the stock due to slow demand from their end customers.
• Korea, China, Vietnam and Japan markets remained slow. Bangladesh and Sri Lanka market responded well. Since there is summer holidays season so most of the customers are enjoying their holidays. Prices remained stable during the week due to stable raw material prices.
• Good suppliers are booked till mid of Sep and offering end Sep onward deliveries whereas average suppliers are booked till end of Aug and offering early ~ mid Sep onward deliveries. Suppliers are expecting slow market sentiment in coming days.

Following were the closing rates based on CNF Far Eastern ports.

20×16/128×60=63”, in range of 1.12 to 1.14 per yd, 16×12/108×56=63” between USD 1.22 to 1.24 per yd and 20×20/108×5863” in range of USD 0.93 to 0.95 per yd based on CNF Far Eastern ports.

• Another week went slow from European markets due to holiday season. Limited inquiries were received from the trading companies of Germany, Italy and Portugal.
• USA market also remained slow due to holidays season. Wider width suppliers also did not receive healthy inquiries hence they have same delivery available from end Oct onward.
• It is expected that European and USA market will remain slow for coming weeks as well.

Bed Linen & Towels:

• Home textile market was firm in last week. Customer floated goods inquiries in the market & maturity of business was satisfactory. USA Market, customers were floated good inquiries and business maturity was good in terms of order placement. European markets business were also seen better. Customers were placed orders and new requirements are under discussion for upcoming orders and also placed good orders in Bedding and Towels.
• Prices were almost stable in not seen any decrease in prices last week. keeping in view current  market situation it looks that prices will be remain stable at current level in upcoming weeks.
• Although Suppliers have good orders in hand but still they are under sales pressure because supplier have not enough order  to fulfill their capacities 100%, Almost supplier have 70  to 75% orders against their production facilities, so to full fill their production capacities they are trying to get more orders from different customers / markets, even suppliers are offering very sharp prices to capture bulk orders.
• As far as shipments are concerned supplier is offering 60 to 70 days for new orders & for repeat orders supplier are offering 50 to 60 days.

Garments:

• With the investments in power generation capacity, upgrading IT, developing design and R&D capability by garment manufacturers they have taken it to the next level by opening up offices around the globe near major markets and fashion stores so that customer can get easy access to the products.
• Garments manufacturing is the least energy- and capital-intensive industrial activity and thus resonates with Pakistan’s resource endowment to generate economic growth and employment. However, to fully realize its potential, apparel manufacturers need to move up the value chain.
• Apparel manufacturers are keen to develop and explore the garments business by using various strategies according to the competition situations in domestic and global markets. Attractive prices are grabbing buyers interest to place further orders. Factories are offering October onward deliveries according to their available capacities and as per design of the garment.

Going Forward:

• About future market it is expected that yarn market will be remains soft, stable and business will be according count to count and brand to brand in market and bulk cotton arrival will determine the price for next season. Further price trends of yarn will be according to demand and supply of different counts which will lead price level.
• Market remained under lackluster business activity with limited deals maturity. It seems prices will remain under pressure due to decline in cotton prices internationally.
• Technically speaking market may tend to slow down further in coming weeks.
• Far Eastern markets were slow due to summer holidays. Limited inquiries were received from European and USA markets however no considerable orders were placed.
• Overall market was firm and as per forecast market will be in coming days it looks situation will be further improve, because prices are stable. So it looks that customers will further buying and will place good orders in upcoming weeks.
• Growth in the export of garments is likely to accelerate given the emerging opportunities and the support from the government in terms of import policies and custom reforms.