Cotton futures trade to commence within 3 months

Cotton futures trade is set to start at the Pakistan Mercantile Exchange (PMEX) over the next three months. This would make it possible for the traders to cover risk against volatility in prices.

As stated by PMEX, it first intends to launch future contracts in sugar, and hence it would take some time to start the same for cotton, as some modalities in relation to the contracts still need to be decided.

Officials from the textile industry have been engaged by the PMEX to make way to introduce cotton futures.

The PMEX stated that, there are some constraints on traders’ exposure to future contracts, and added that, it would soon work out the same and inform the investors before commencement of the trade.

In recent weeks, a sharp fall has been witnessed in cotton prices which plummeted from Rs. 13,000 per bale in early part of the year to Rs. 8,500 per bale, and has thus resulted in losses to the yarn producers who had purchased cotton earlier at high prices.

Future contracts, besides allowing the cultivators, ginners and yarn producers to hedge against unpredicted movement in cotton prices, would also open up a new investment avenue for investors.

In cotton futures, though there is no physical transfer of commodity, it allows the buyers and sellers to lock a particular price, and hence it allows the trader to handle risk.

However, the textile millers in the country are resistant to futures contract as they are apprehensive that it would upset the pricing of age-old physical trading at the Karachi Cotton Exchange. Also there are concerns regarding high speculation in cotton futures.

Nonetheless, the PMEX stated that, the future contract prices would be standardised with New York cotton futures rates, which the local market uses as an indicator for fixing the prices, and hence there should not be any apprehensions regarding the same.