For the first time in 52 years, KCA unable to release cotton spot rates due to building closure by federal authorities

The cotton sector in Pakistan is facing significant disruptions after the Karachi Cotton Association (KCA) failed to issue the daily cotton spot rate, a benchmark used for domestic trade, financing, and international market representation, for the first time in 52 years, Dawn reported. 

The crisis unfolded after the Federal Investigation Agency (FIA) and the Evacuee Trust Property Board took control of the KCA’s historic building, which dates back to 1933. The authorities declared it federal property, sealed the building, and evacuated over 320 offices of cotton brokers, importers, exporters, and textile groups operating from there.

The move has raised serious concerns among cotton stakeholders in Pakistan and abroad. The KCA, which has historically been the authority for determining the daily spot rate since 1935, has long played a pivotal role in shaping the cotton market. 

This marks an unprecedented shift, as the spot rate is essential for bank financing to ginners and textile mills, and is also used for valuing cotton stocks for insurance purposes.

Cotton Ginners Forum Chairman Ihsanul Haq noted that apart from a brief interruption in 1973, when cotton-related institutions were nationalised, the daily spot rate had been issued without interruption for decades. The inability to release the spot rate following the building’s closure is now affecting trade and creating uncertainty in the cotton sector.

The suspension of the spot rate is also causing problems for banks, which are facing difficulties in extending loans to textile mills and ginning factories that pledge cotton as collateral. 

Furthermore, insurance companies are finding it challenging to assess the value of mortgaged cotton stocks, complicating the process of compensating for potential losses, such as those caused by fire.

Pakistan’s failure to report daily cotton prices in international markets is also threatening the country’s reputation and commercial standing in the global cotton trade.