Capping yarn export: decision likely to have mixed effect on textile industry

The government decision to cap yarn export is likely to have a mix effect on the textile industry, says the State Bank of Pakistan. The SBP quarterly report, released on Monday, says on one hand, the above decision, would stabilise yarn prices which is good for downstream industry.
On the other hand, it is likely to hit the spinning sector as the increased export demand provided much needed-relief after the industry losses last year on account of low international prices, liquidity constraints and energy shortages. The SBP also points out that unlike value-added sector, spinning sector is not provided any subsidised credit facility.
China''s total yarn imports grew by 74 percent year on year in 2009, while imports from Pakistan grew by 136 percent. Production of cotton in China declined by 14 percent during July-November, however, consumption rose by six percent during the same period.
Although, exports of bed-wear and towel rose in terms of quantum, reflecting improvement in external demand, the value of exports during July-January was lower due to lower unit values. On the other hand, quantum impact of readymade garments and knitwear declined in FY10. Initially, low external demand and domestic issues were hampering the exports, but lately tough competition from regional countries like China and Bangladesh is taking its toll on the local exporters.
Comparison of regional competitors amid revival in US textile market. The impact of global recession was quite visible in the declining textile imports of the developed countries, which resulted into falling textile exports of Pakistan and its regional competitors.
However, as the global economy is on the path of recovery, the demand for apparel and textile products has also rebounded in the US. The regional textile exporters are now eyeing this recovery in order to capture a major share in US apparel and textile market. However, a comparison of regional economies indicates that textile and apparel exports performance of Bangladesh, India and Pakistan is lagging behind China.
It is interesting to note that despite higher unit prices than Bangladesh and Pakistan, China managed to capture a lion''s share in the US apparel market. The share of China in the US apparel market in particular has almost doubled in some of the categories since the removal of quota in the US market.
(The share of China rose from 15 to 30 percent in US imports of cotton knit shirts, whereas China''s share increased from 13 to 26 percent in case of cotton trousers during CY09). Economy of scale, labour efficiency, good quality, production of market specific products, availability of latest textile machinery (China is the largest producer of textile machinery), established infrastructure and technological readiness are positive contributors to China''s progress. (According to GCI 2009-10, China is ranked at 29th position compared to Pakistan at 101 and Bangladesh at 106th place).
In addition, increase in the tax refund rate for exported textile and clothing to 17 percent from 16 percent coupled with the introduction of a comprehensive 3-year Textile Plan to aid the textile and clothing industry also facilitated exporters.
The textile sector of Bangladesh was relatively less affected by the global recession owing to lower unit values, incentives and duty-free exports access to countries like the US and the EU. India''s apparel exports remained subdued due to high export prices and tough competition from Bangladesh. Anecdotal evidence suggests that Indian textile firms are setting up their units in Bangladesh in order to gain the benefits of duty free access.
On the other hand, Pakistan textile sector was confronted with issues like power shortages, low investment, lack of latest technology and liquidity problems that hampered the textile exports during CY09. However, with the aim to foster textile exports, Textile Investment Support Fund has been proposed by the government for modernisation of machinery, infrastructure development, skill development, marketing and use of technology. However, this proposal has not been implemented yet.

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MAJOR TEXTILE EXPORTS PRICE & QUANTUM IMPACT (JULY-JANUARY)

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                                                                   Million US$

                       Total      FY09    Due to     Total      FY10    Due to

                      Change   Quantum     Price    Change   Quantum     Price

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Textile Group         -242.8                         131.9

Of which

Raw cotton              49.1      49.6      -0.5     102.2      83.8      18.4

Cotton yarn           -113.9    -100.3     -13.7     202.8     302.1     -99.3

Cotton fabrics         158.5     177.6     -19.1    -249.4    -290.0      40.6

Knitwear                -5.4     166.1    -171.5     -64.8    -106.6      41.8

Bedwear                -96.2     -11.8     -84.4     -50.8       7.0     -57.7

Towels                  49.0      84.3     -35.3      -4.7      60.0     -64.7

Readymade garments    -102.0    -156.6      54.6      23.3     -78.8     102.1

Art silk and

synthetic textiles      -0.1      -0.1       0.0     116.3      79.1      37.2

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