AKD Quotidian about — Cotton Outlook and Textile Update

Karachi: Textile Updates: Following the recent floods across eastern part of Australia, the Australian Bureau of Agricultural and Resource Economics and Sciences has cut down its harvest estimate of cotton by 5.6%. Cotton output may be curtailed to 1.08MT compared to the estimate of 1.144MT made on Dec 6’11, before the floods.

According to AKD Securities, Decline of 5.6% in forecasted production of cotton in Australia is likely to translate into decline in global export supply by -1%. Below expectation supplies from Australia may curb global stockpiles and help boost prices in short term. As per Economic Intelligence Unit, average cotton price (Cotlook A) for 2012 is forecasted at US 0.963/lb while it will range between US$0.90 to 0.95/tb during 2013. The estimates are based upon higher expected cotton production in both 2011/2012 and 2012/2013 and the more long-term reluctance to switch back from man-made fibers as polyester and viscose prices maintain their competitive advantage. On domestic front, WTO General Council has approved much awaited Trade Tariff Concession Package to Pakistan. “Additional Autonomous Trade Preferences” will entertain 75 product lines by granting exemption from import duty. Among these, 20 product lines will be subject to Tariff Rate Quotas (TRQS) while major absentees include bed wares and towels. This exemption will be applicable from Jan 1’12 to Dec 31’13 whereas the EU will have right to extend it for another year. Therefore, by implication, import duties paid after Jan 1’12 will be refundable unless final EU regulation dictates otherwise. Complete list of 75 product lines can be viewed by clicking the on right.

Flood in Australia may Boost Cotton Prices: Following the recent floods across eastern part of Australia, the Australian Bureau of Agricultural and Resource Economics and Sciences has cut down its harvest estimate of cotton by 5.6%. Cotton output may be curtailed to 1.08MT as compared to the estimate of 1.144MT made on Dec’6’11, before the floods. Despite decreased output estimates, Australia is still forecasted to have a bumper crop where production of cotton was marked at O.898MT in the last cotton season. According to bureau, the extent of the damage won’t be clear until the water recedes. While it is estimated that around 48% of the total area allocated to cotton is situated in regions affected by floods, the area of cotton crops directly affected by flood water will be smaller, in part because of protection provided by irrigated cotton levee banks. However, as per media reports, significant risk resides that damage to cotton crop may be larger than estimated. Australia is third largest cotton exporter accounting for 107% forecasted share in global cotton exports. Decline of 5.6% in forecasted production of cotton in Australia is likely to translate into decline in global export supply by -1%. Below expected supplies from Australia may curb global stockpiles and help boost prices in short term that remained at the lower end after it once started to decline. As per Economic Intelligence Unit, average cotton price (Cotlook A) for 2012 is forecasted at US 0.963/lb while it will range between US$0.90 to 0.95/lb during 2013. The estimates are based upon higher expected cotton production in both 2011/2012 and 2012/2013 and the more long-term reluctance to switch back from man-made fibers as polyester and viscose prices maintain their competitive advantage.

EU Trade Tariff Package Finally Approved: Finally, WTO General Council has the approved much awaited Trade Tariff Concession Package to Pakistan. “Additional Autonomous Trade Preferences’ will entertain 75 product lines by granting exemption from import duty. Among these, 20 product lines will be subject to Tariff Rate Quotas (TRQs) while major absentees include bed wares and towels. This exemption will be applicable from Jan 1’12 to Dec 31’13 while the EU will have right to extend it for another year. Therefore, by implication, import duties paid after Jan 1’12 will be refundable unless final EU regulation dictates otherwise.

It is worth mentioning that selected 75 product lines constitute €900mn accounting for ~30% of EU imports from Pakistan (€3.3bn). Pakistan’s exports to EU are dominated by textiles and leather. Pakistan already enjoys EU’s Generalized System of Preferences (GSP) which allow it to export more than 3000 tariff lines duty free to the EU while allowing reduced duties on a further 3,000 items.