Clarification

The last few days have seen reports in the press devoted to the problems being faced by: the value added textile sector. The issue being discussed is the high cost and lack of availability of cotton yarn in the domestic market, making the domestic value added textile industry in competitive.
Although this is purely a cotton-related phenomenon, some commentators have tried to attribute this to the supposed high prices of Polyester Staple Fibre (PSF). This link, however, is not very clear and the situation must be given a proper analysis to attempt to bring out the facts.
To understand why this is of concern to the downstream industry, one must look at the current context. If we compare the cotton crop with last year, there is an expectation of a bumper crop in Pakistan, with current arrivals at ginning mills 1.5m bales higher than the same period last year. The target crop size this year is stated to be 13.3 m 3.3m bales.
This then begs the question why this talk of a shortage and high pricing? Since the cotton economy has become globalised we need to look at the global scenario for the answers. International consultants predict smaller than expected crops sizes in the other major cotton producing countries, (1 million tonne reduction in the Chinese cotton crop this year alone equivalent to 6.2 million (Pakistan bales), thereby driving the cotton NY futures higher.
The NY cotton futures are currently at an equivalent Rs 127/kg vs our domestic price of Rs 116/kg average for the month, whereas the current prices are Rs 132/kg for NYF and Rs 122.5/kg for domestic cotton (after adjusting for yield). With such clear differences, it is obvious that our local producers of raw cotton and cotton yarn will get better rates by selling into export markets.
Also, this difference in prices has been noted by the largest regional consumer China, as Chinese buyers have arrived in Pakistan and are buying up material for export. Government figures show that raw cotton and cotton yarn exports increased by 23% and 31% respectively by volume in Q1 of the current fiscal year vs same period last year.
The exonerate PSF, the supposed villain of the affair, it should be noted that in the period September to present, PSF prices have gone from Rs 119/kg to Rs 112/kg, while in the same period, cotton prices have gone from Rs l13/kg to Rs 122/kg (adjusted for wastage). This is the absolute opposite to the link being created in earlier reports and obviously an attempt to deflect the attention from the core issue.
It is, therefore, clear that the real reason for high cotton yarn prices is purely supply and demand. There will be many calls from many quarters that the government needs to intervene and "correct" the "anomaly". However it is clear that this is not an anomaly but in fact market forces at work, and the government must resist all such calls to interfere unnecessarily.-PR