By: Invest Capital Markets Limited
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According to data released by Pakistan Cotton Ginners’ Association (PCGA), cotton arrivals grew by 10% YoY upto 15Dec’14. In today’s Value Seeker we discuss the YTD cotton arrivals and cotton outlook going forward.
Cotton arrivals beef up by 10%YoY
As per the data released by PCGA, cotton figures increased by 10% to 13.23mn bales as compared to 12.25mn bales during same period last year. YTD cotton arrivals are just 0.3mn bales behind the revised target of 13.54mn bales set by the Cotton Crop Assessment Committee (CCAC). The hike primarily ascribed to 9%YoY growth in Punjab arrivals to 9.4mn bales backed by more area of cotton cultivation & less damage from pests. Cotton sown area was 2.352mn hectares this year which were 2.199mn hectares last year. Similarly low cotton leaf curl virus was observed this year which leads to better cotton crop in Punjab. Sindh reflected an arrival growth of 5%YoY to 3.8mn bales as compared to 3.6mn bales during same period last year. On fortnightly basis, cotton arrivals descend by massive 10%YoY to 1.1mn bales v/s 1.2mn bales in same period last year.
District Sanghar steals the show in district-wise study
An analysis of Sindh arrivals revealed that district Sanghar’s YTD share was settled around 11% (highest amongst all districts of Pakistan) to 1.5mn bales as compare to 1.4mn bales last year. District Sanghar’s arrivals stood at 44k on fortnightly basis as against 138k total bales from the Sindh during the said period reflecting highest share of 32%.
Punjab’s share in total YTD arrivals settled around 72% witnessing a significant 1.0%YoY growth. Rahim Yar Khan fetched 19% share (173k bales) in fortnightly flows of Punjab while its YTD contribution remained at 13% (highest amongst all districts of Punjab). However, on percentage basis, district Faisalabad leaded with 53%YoY growth to 93k bales during YTD arrivals.
Outlook: Cotton prices to stay at current level
We expect cotton target for season 2014-15 will easily be achieved as cotton numbers are just approaching the target of 13.5395mn bales. The cotton prices continue its downward trajectory in FY15YTD as it reduced by 28% to 4,750/maund since the start of FY15. Adequate supply and falling international cotton prices (Cotlook & CC index 328 decreased by 21% & 22% respectively since Jul’14-todate). Going forward, we expect, cotton prices will remain subdued which will ultimately benefit the textile sector.
Being a major ingredient of textile, low prices of cotton is likely to reduce the textile industry production cost. Furthermore, it also lessens the borrowing needs for procurement of cotton and resultantly low financial charges are expected to boost up the bottom-line of the companies.