The Rupp Report: More Traffic In The Cotton Trade

Three weeks ago, the Rupp Report mentioned there is “a lot of traffic in the cotton trade”
(See ”
Rupp Report: A Lot Of Traffic In The Cotton Trade
,” Feb. 16, 2010)
. And the traffic and
the pressure are going on, also in Pakistan. One of the traditional cotton countries is having some
problems, different local sources report.

Increased Yarn Exports …

Minister for Textile and Industry Rana Muhammad Farooq Saeed Khan reports currently that
cotton yarn exports have increased by 50 percent for the first six months of the recent fiscal year
compared to the previous year. Reasons include sharply rising cotton and yarn prices in the
domestic market owing to increased yarn exports. Cotton prices have increased from 3,175 rupees per
maund (1 maund is the equivalent of 37.32 kilograms [kg]) in December 2008 to 4,869 rupees per
maund in December 2009.

… Leads To A Shortage Of Raw Material

To ensure availability of cotton yarn, the Pakistani government has imposed a 35 million-kg
cap on yarn exports from March 1 to June 30. These measures should help significantly to improve
the domestic availability of yarn. On the other hand, cotton fabric exports dropped by 4 percent
and home textiles, mainly bed linen, by 10 percent during the 2008-09 period. According to the
government, the reasons for this drop are the global economic recession and loan shedding problems
with power and gas. Furthermore, the government is making efforts to end the anti-dumping duties
imposed by the United States and the European Union on cotton products imported from Pakistan.

And Over-demand …

Pakistan is the fourth-largest cotton-producing country in the world, producing 13 million
cotton bales this year, compared to 11 million bales last year. However, the demand for cotton
totals 15 million bales. This amounts to a deficit of two million bales to meet production demand.
The government stated that another reason for this situation is the poor crop in China, which has
encouraged buyers to export cotton to China.

… To Higher Prices

The crisis thus triggered in Pakistan led to an increase in yarn prices. Dealers exported 700
million kg of yarn during the 2006-07 period, 526 million kg in 2007-/08, 527 million kg in
2008-09, and some 368 million kg so far in the current year. In spite of the cotton yarn shortage,
there were no problems in the weaving industry, as the growers also were paid record prices.

The Bremen Cotton Exchange reports a sharp cotton price increase in February 2010. The
Cotlook A Index rose from 75.35 cents per pound on February 1 to 85.55 cents per pound on February
26. Cotton prices are supported by strong fundamentals, including reduced production and rebounding
mill use that are projected to reduce global cotton stocks by 15 percent.

Realizing the situation, the Pakistani government, in consultation with the All Pakistan
Textile Mills Association and the so-called “power looms factories,” withdrew custom duties on
cotton imports and started registering the cotton exporters. When the registration didn’t work out,
the Pakistani Cabinet Committee on Textile capped yarn exports at 50 million kg, down from 61
million kg.

Furthermore, the chairman of the Senate Standing Committee on Textile reported it has agreed
to reduce yarn exports from 50 million kg to 30 to 35 million kg until June 2010. In the meantime,
the recommendation has been sent to the Textile Ministry for implementation.

Important Industry Sector

The Pakistani government is aware that the textile sector, along with its value-added sector,
plays an important role in increasing foreign exchange. The chairman of the standing committee said
that ignoring the importance of the textile industry would be detrimental to the national economy.
Cotton exports reached 56 million kg by January 2010, resulting in domestic yarn shortages, and
domestic market prices increased by 13 percent.

March 9, 2010