Cotton arrivals have been springing some very good surprises recently-– especially taking into account the pessimism prevailing in the textile circles regarding this year’s cotton output.

According to the recently-released Pakistan Cotton Ginners’ Association (PCGA) report, phutti arrivals have in fact seen an incremental improvement year on year, with consolidated statements showing total cotton arrivals in ginning factories of Punjab having increased by 12.95 percent year on year. Meanwhile, arrivals from Sindh have gone up by 15.72 percent year on year to reach 3.614 million bales up till December 15.

Total cotton arrivals at ginning mills across the country have thus levelled at 12.249 million bales midway through December, as compared to 10.768 million bales that were brought in during the corresponding period of last season.

Of these total arrivals, PCGA data shows that 11.662 million bales were pressed by ginners-–and 88 percent of this stock has already been sold, leaving behind an unsold stock of 1.384 million bales. The textile mills in Pakistan, moreover, have consumed 9.96 million bales as of December 15, while another 315,804 bales of cotton have been sold to exporters, the data indicated.

This improved supply side dynamics has taken substantial pressure off local cotton prices, which have slid by nearly 11 percent since the start of October when they nearly skimmed 8,000/maund in some places. However, the ex-Karachi spot rate per maund and the average offering rates in both provinces as of this week still remain substantially higher than the price levels prevailing during the same time of last year.

One explanation of the higher rates is, of course, the steady buyer interest, which did not waver even at the start of the season when the market was full of rumours about the country’s cotton output and fresh stock was being traded at exorbitant prices.

Standing from here, therefore, the outlook for prices remains strong. Ginners have, moreover, repeatedly told BR Research that they are willing to sit on their stocks until they get a fair price and it seems that the improved textile dynamics will be enough to allow millers throw caution to the wind and buy in bulk even if the rates go above 7,000/maund.

Additionally, the local cotton is still trading at a discount of 16 percent to Cotlook A Index as of this week, so even if prices were to go a little higher, manufacturers of value-added goods at least would be able to justify their purchases.

These slightly higher cotton prices, however, are likely to result in a decline in spinning margins going forward. Spinners are also in a tight position at the moment because of slacked demand for yarn and reports of Chinese yarn importers demanding that asking prices be lowered.

By the time the next fortnightly figures are released, BR Research expects that the total arrivals in the country’s ginning mills will have easily exceeded the output target of 13 million bales set by the CCAC in September. This means if arrivals keep up their pace for another 4 weeks, the total output just might actually skim close to the initial target of 14.1 million bales.