KARACHI: Along with the value of US dollar, the price of cotton also fell. A significant reduction of Rs 2,200 per maund in the spot rate of cotton was noted. Due to continuous spell of rain, cotton crop is affected. The rate of cotton in international cotton market; however, remained stable.
There was increase in cotton prices in India. Recession in international cotton markets was seen due to rising tensions between China, USA, Russia and Ukraine. Pakistani textile exports have decreased by 10%. All Pakistan Textile Mills Association has presented outlines of new reforms to stabilise economy and boost exports.
During the last week, the price of cotton continued to fluctuate under the influence of the dollar/ rupee parity rate. The price of cotton continued to increase in the first two days of the week under review, but on Wednesday, the price of cotton started to fall due to the unusual drop in the price of the US dollar and the positive response from the International Monetary Fund (IMF).
Due to further reduction in cotton prices, the prices of Phutti also started decreasing, thus the uncertainty in the market continued. The price of cotton in Sindh province has decreased from Rs19,000 per maund to a low level of Rs 15,500 to Rs 16,500. Similarly, the price of Phutti per 40 kg has decreased by about Rs 1,000 to Rs 1,200.
In the same way the price of cotton in Punjab is decreased from Rs 20,300 per maund to Rs 17,500 to Rs 18,000 per maund. The price of Phutti has also decreased, although its quality is being affected due to rain.
The Spot Rate Committee of Karachi Cotton Association has reduced the spot rate by Rs 2200 per maund.
It is said that the cotton crop has been affected due to the rains, but no estimate is yet available.
On the other hand, textile mills are cautiously purchasing cotton as per their requirement. Due to the high dollar, it is difficult to import cotton from foreign countries because there is unusual fluctuation in the rate of dollar. It is expected that the rate of dollar may decline further.
According to market sources, many textile mills have reduced their shifts due to the recession in market. Many power looms have already been closed.
Cotton gins are currently in a good position but cotton farmers are facing difficulties due to rains; however; they are getting good prices.
The price of cotton in Sindh province is in between Rs 15,500 to Rs 16,500 per maund. The price of Phutti per 40 kg is in between Rs 6,000 to Rs 7,000.
The price of cotton in Punjab is in between Rs 17,500 to Rs 18,000 per maund while the rate of Phutti is in between Rs 6,000 to Rs 8,000 per 40 kg.
The rate of cotton in Balochistan is in between Rs 15,500 to Rs 16,000 per maund while the rate of Phutti is in between Rs 6500 to Rs 7200 per 40 kg. The prices of banola, oil and Khal are fluctuating in the three provinces.
The spot rate committee of Karachi Cotton Association has reduced the spot rate by Rs 22,00 per maund and closed the spot rate at Rs 17,000 per maund.
Chairman Karachi Cotton Brokers Forum Naseem Usman told that overall cotton prices remained stable in the international cotton market but India saw an increase in cotton prices. According to USDA’s weekly export and sales report, sales for 2021-22 stood at one lac twelve thousand and four hundred bales.
Ecuador topped the list by buying 1,200 bales. Honduras was second with 800 bales. Japan was third by buying 500 bales.
Seventy thousand and four hundred bales were sold for 2022-23.
Vietnam topped the list by purchasing 40,400 bales. Pakistan bought 24 thousand 700 bales and stood second.
Indonesia bought 9,900 bales and ranked third.
Pakistan’s textile exports clocked in at a provisional $1.54 billion, a drop of 10%, in July 2022 compared to $1.71 billion in June 2022, stated the All Pakistan Textile Mills Association (APTMA).
On a yearly basis, textile exports were up 5%, compared to $1.47 billion recorded in July 2021, showed the provisional data released by APTMA. In July 2022, the percentage of textile exports in total exports reached 66%, it added.
“The decline in exports can be attributed to lack of energy supplies, which reduced textile export growth from double digits to single digits. If reliable and affordable supplies aren’t made available, this could further contribute to negative growth in the ensuing months,” said APTMA.
Just days ago, APTMA said exports in July are expected to suffer a major dent, and may drop to $ 1.5 billion.
The development comes weeks after APTMA urged to restore gas and RLNG supply of the export-oriented industry on an urgent basis, stressing that a loss of almost $1 billion in exports would take place, resulting in further damage to the economy.
Pakistan’s textile sector accounts for a major share of country’s exports, which are vital for the cash-strapped economy. Pakistan suffers from low foreign exchange with policymakers mostly scrambling to ensure dollar inflows. In such an environment, many experts have stressed on exports, especially in a rupee-depreciating environment.
On Friday, APTMA, in a statement, also warned that Pakistan is on the brink of economic collapse.
“With depleting foreign currency reserves, rising inflation, the exchange rate in free-fall and irrationally high-interest rates, the country is headed towards a path similar to the economic downfall of Sri Lanka,” APTMA said.
“We at APTMA are pushing for all leaders and policymakers to develop a consensus on how to navigate from this situation of extreme distress and pull the economy out of this downward spiral.”
APTMA in its recommendations said that lack of political stability is a serious impediment to economic progress. Not only does it shorten policymakers’ horizons leading to suboptimal short-term macroeconomic policies, but it is also the cause of frequent policy U-turns and leads to non-completion of ongoing projects. Stability and consistent policy implementation are crucial for economic growth and for the export sector to thrive and contribute dollar earnings to stabilize the Balance of Payments for a sustainable economic outlook.
The exchange rate is a major cause for concern. The ER instability has significant negative relationship with sectoral exports of Pakistan such as textile. A negative indication indicates that a rise in relative price is to blame for the decline in export demand. Pakistan has been under the grip of debilitating ER for quite some time now. The value of one dollar reached its highest point ever on 27th July 2022 when it hovered at around 237 Pakistani rupees. In the long run, the large devaluation of the rupee is worst for exporters especially textile exporters because it raises input costs, making exports less competitive.
APTMA said it is time to abandon the widespread misconception that exporters welcome the rupee devaluation. The central bank and government should concentrate on achieving an ER that is competitive in the market and achieves actual exchange parity. Dollars earned through exports are the most sustainable with the added benefit of no compulsion to return them, no interest, and the cheapest with only 3-4% cost. Hence, focusing upon dollars generated through exports is far better option than bonds.
Moreover, the need for a long-term policy featuring lower interest rates cannot be underestimated, and its implications for a brighter economic future which generates foreign currency, jobs and international recognition cannot be denied. We need more investments in Pakistan, alongside holistic policy reforms that lend confidence to investors and the markets. This need cannot be met with an interest rate of 15%, says APTMA.
It said roadblocks to entrepreneurship and innovation need to be mitigated so that we can empower our youth and our disenfranchised talent to bring about a grassroots level economic revolution. We must rid our policymaking of the economic formula whereby interest rates are raised in order to stabilize the economy, as this can only be effective in certain highly developed economies: a title which Pakistan’s economy is a long way off from attaining. The best mechanism is through supply-side interventions, bringing more individuals into the economy and increasing the labour supply – for which entrepreneurship and financial inclusion is critical.
It said the current account deficit increased by 517 percent in FY22 compared to FY21. To counter the dangers of our mounting debt, we must immediately take the following steps:
Reduce the import bill by at least $5 billion, especially energy’s, through ensuring energy efficiency.
Shockingly, petroleum imports are increased by 50% in June 2022 in volume terms. Pakistan imported petroleum products worth $24 billion last year. Gas needs to be used for productive purposes only. At present gas is being supplied to ceramics, steel and glass also.
Declare an energy emergency and introduce measures to conserve energy which can save Pakistan’s economy in more ways than one:
Aggressive conservation – cuts import bills by more than 25% & saves $6 billion.
Implement both price & administrative measures to curtail consumption.
Curtail domestic gas supply to reduce consumption & waste by 18% UFG. Single point energy supply be made to domestic gas.
Fast track calibration of cooking burners is needed to save 200 MMCFD of Gas/RLNG.
APTMA also recommended to improve documentation and inclusion of unbanked persons; reduce external pressure ‘hawala’ from $10 to $5 billion by documentation as hawala can survive on undocumented sector only; introduce scheme whereby State Bank of Pakistan opens up bank accounts for those currently having no account with a pre-approved overdraft facility of PKR 10,000 that can be used as seed money for entrepreneurship.
It asked to revamp and improve the export paradigm by ensuring competitive tariffs and improved facilitation.
“Furthermore, we must take steps to add value in our exports and thereby improve global perceptions of Pakistan. This would require an environment that facilitates exporting industries to focus on quality improvement through new processes, thereby developing new products and entering fresh markets.
With a myopic focus on short staple fibre raw cotton, we rely on a shrinking market while neglecting the rapidly expanding market for MMF. The MMF tariff regime effectively prevents Pakistan from aligning its products in tandem with the rest of the world. The duty protection given to obsolete plants in Pakistan is denying the Pakistani industry any chance to compete in this booming market, internationally or domestically. We must do away with such hurdles so that progress can be made in value addition, diversification and market expansion.
Lastly, leaders must prioritize export-led economic growth. Enhanced exports enable the inflow of foreign currency to finance imports, service debt, stabilize exchange rates and to overcome the persistent problem of the balance of payment deficit.”
The textile sector has performed exceptionally well in the last 2 years. Textile exports have increased by 43 percent in FY22 as compared to FY18. Textile industry has invested a sum of $5 billion over the past few years in new plant & machinery and upgradation. Further expansion and increase in exports are limited by the inconsistent availability of energy at Regionally Competitive Energy Tariffs (RCET). Given that the past export spur occurred due to the priority of the government to provide regionally competitive terms for the sector, this policy must be consistently maintained in the future to enable economic stability and subsequent growth.
Copyright Business Recorder, 2022
Comments
Comments are closed.