KARACHI: A bearish trend was witnessed in local and international cotton markets. The rising rate of dollar is disturbing the markets. Due to the disparity of cotton and cotton products, as well as, due to recession in the international markets a crisis-like situation is increasing in the textile sector.
In Pakistan, India, Bangladesh, Vietnam and Turkey, the textile sector has reportedly close down by almost 40%. So far import contracts of about 40 lac bales have been signed and more are being signed also.
In the domestic cotton market, the price of cotton remained overall stable during the previous week followed by a bearish trend. Textile mills are making cautious purchases of cotton while cotton farmers and traders are selling Phutti at good prices due to low cotton harvest. Ginners are not selling quality cotton at low prices due to which the rate of cotton remained stable but afterwards it decreased.
A mixed trend was seen in the international cotton markets. The rate of Future Trading of New York cotton after falling to a low of 93 US cents per pound rose to 97 US cents on news of a hurricane in the U.S. Later, it rebounded to 92.50 US cents after the rate of dollar reached at the highest level in twenty years and after the increase of rate of interest by FED. Although the arrival of cotton in India is increasing day by day, there is a significant decline in the price of cotton. According to experts, the price of cotton in India is likely to decrease further in the coming days. According to reports received from India, 35 to 40 percent of textile mills are either completely closed or running partially. More or less the same situation is faced by the textile sector in Vietnam, Bangladesh and Turkey.
Pakistan’s textile mills are not running optimally and the consumption of cotton will also be relatively less. According to the sources, the production of cotton in the country is expected to be around 65 lac bales. If the mills remained closed like this then the demand of cotton will be one crore fifteen to twenty lac bales.
However, some large groups of mills have signed import contracts of about forty lac bales from foreign countries.
If the price of New York cotton falls further, the mills will sign more contracts with foreign countries because the quality of local cotton is not up to standard and its price is also high. Moreover, the high rate of US dollar is refraining mills from importing more cotton.
On the other hand, there is a gap between the demand and price of cotton. The mills are facing losses on buying cotton at present rates. As the FED has also increased, due to which people in the international markets would likely to pay more attention to food than textiles. The energy crisis is also intensifying there, due to which there is a recession in some of the famous stores.
The textile sector got export orders on Christmas but this year due to heavy recession textile exporters are worried about and they are uncertain about the future.
The rate of cotton in Sindh is in between Rs 18,600 to Rs 22,000 per maund. The rate of Phutti is in between Rs 7,500 to Rs 10,000 per 40 kg. The rate of cotton in Punjab is in between Rs 20,000 to Rs 23,500 per maund. The rate of Phutti is in between Rs 8,500 to Rs 11,800 per 40 kg. The rate of cotton in Balochistan as per quality is in between Rs 19,500 to Rs 23,500 per maund while the rate of Phutti is in between Rs 9,000 to Rs 12,000 per 40 kg. The rates of Khal, Banola and oil remained overall stable.
The Spot Rate Committee of the Karachi Cotton Association decreased the spot rate by Rs 500 per maund and closed it at Rs 22,000 per maund.
Naseem Usman, Chairman of Karachi Cotton Brokers Forum, said that the international cotton markets had a mixed trend. The rate of Future Trading of New York cotton after a decreasing trend reached at 92.50 US cents per pound. According to USDA’s weekly export and sales report, sales for 2022-23 stood at 32,400 bales.
Pakistan with 27,800 bales, including 4,700 bales swapped from China was the top buyer. El Salvador with 8,600 bales was the second largest buyer. Guatemala with 6000 bales was on the third place.
For 2023-24, 13,300 bales were sold. Pakistan with 8,800 bales was on the top. Guatemala with 4,500 bales was on the second position.
Textile industry is in trouble due to the global cotton crisis as around 50 percent of the spinning mills in India, the largest cotton producer, have already been closed; despite the fact India is importing cotton from China.
India is a big market, and it can use Chinese cotton for the local market because the products produced from Chinese cotton are banned in the United States. Cotton crop production in India has drastically reduced, but in Pakistan it has largely been destroyed due to floods, particularly in Sindh and Southern Punjab.
Spinners in Pakistan are also operating on low capacity and many of them have already closed their operation. Cotton prices in Pakistan are not viable, but imports are even more expensive.
Import of cotton from India even if permitted by the government of Pakistan will not be possible because of its own shortages.
This is not the only issue. Government policies are also a big issue. Traditionally, governments in Pakistan do not take timely decisions. Actions are announced when any crisis reaches its peak. To sustain exports and keep the apparel industry and other value-added sectors vibrant there is a need to make a paradigm shift in the import policy.
The import of all yarns and fabrics must be allowed at zero duty and sales tax to ensure that weavers and value-added units do not face shortages of their basic raw materials.
If the government failed to act promptly then there would be no use if permission is granted when local yarn supplies are completely dried up.
The situation might hurt some spinners, but they have already curtailed their workforce. The loss of jobs would be much less if value-added jobs are secured. Spinners provide livelihood to only 15 percent of the textile workforce, while the rest comes from value-added sectors.
If fabric import is liberalized, the garmenting sector would get a chance to increase its product range and accelerate exports. The local spinners already deprived of raw material would also come up with different blended varieties of yarns so that weavers could produce more varieties of fabric.
The government of Pakistan is already doing an excellent job by providing matching grants to SMEs for purchasing stitching machines. These SMEs would need fabric that might not be available due to shortage of cotton and yarn.
Big millers could survive a lean period of one year, but most of the SMEs cannot because they are starved of cash and other resources. The garment industry is on the go and planners must ensure that this momentum is not disturbed.
Pakistani spinners may use the cotton crop that has been salvaged, but importing cotton is going to be pretty expensive. Imports of cotton would be a drain on the exchequer, as well.
The same foreign exchange could be used to facilitate import of yarns and fabrics which are the basic raw material of weavers and value-added exporters. It would not only save jobs but create new jobs in the garmenting sector.
The central bank could facilitate the spinners by granting a moratorium on their loans for a year. Flood-ravaged Pakistan needs prudent planning to save jobs instead of public appeasing measures that could destroy jobs.
Copyright Business Recorder, 2022
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