KARACHI: The cotton market saw low business volume previous week. An increase in the rate of Future Trading of New York cotton by 3 US cents per pound was recorded. The crisis in the textile sector is getting worse. As more sectors are being closed down, unemployment has reached to its peak.
Negotiations between Pakistan Cotton Ginners Association and Pakistan Cotton Brokers Association are under way. Sowing of new cotton crop has partially been started. The delay in setting the intervention cotton support price by the government is affecting the crop.
In the domestic cotton market, cotton prices continued to fall during the past week due to demand for cotton yarn and sluggish prices. Spinners are cautiously buying cotton while panicked ginners are trying to sell cotton at lower prices.
Due to all these factors price of cotton has further decreased by about Rs1000 to Rs 1500 per maund, while the business volume has also decreased relatively.
The crisis like situation of the textile industry increased after the government removed the energy incentives of the export-oriented industries including the textile sector.
Gohar Ijaz, central leader of All Pakistan Textile Mills Association has appealed to the Prime Minister Shahbaz Sharif in a letter to restore the energy subsidy of the textile sector immediately. Textile sector is already running at about 50% capacity. If this sector is closed down some one Crore people will become unemployed.
Apart from this, under the pressure of the International Monetary Fund (IMF), the government has taken other strict measures, due to which the economy is in a severe crisis.
There are rumours that government is considering to increase the interest rate to about 20 percent, while a proposal of increasing the prices of electricity, gas is also under consideration. In such a case it will become difficult if not impossible to run the industries.
The relevant institutions of the government should immediately take positive steps to increase the production of cotton for the next season, because the sowing of cotton has partially started in some areas of Sindh.
The support price of other crops is being increased and announced immediately. Similarly, the support price of Phutti should also be increased. If delayed, the cotton crop is feared to be affected. Our country cannot afford to import large quantity of cotton by spending a lot of foreign exchange.
The rate of cotton in Sindh after decreasing by Rs 1,000 per maund is in between Rs 17,000 to Rs 19,500 per maund. The rate of Phutti is in between Rs 6,000 to Rs 8,200 per 40 kg.
The rate of cotton in Punjab is in between Rs 18,000 to Rs 19,500 per maund while the rate of Phutti is in between Rs 7,000 to Rs 9,000 per 40 kg.
There has been a relative decrease in the prices of Banola, oil and Khal.
The spot rate committee of Karachi Cotton Association has kept the spot rate unchanged at Rs.19,800 per maund.
Naseem Usman, Chairman of Karachi Cotton Brokers Forum, said that over all a bullish trend prevails in international cotton markets. The rate of Future Trading of cotton was in between 80 to 83 US cents per pound. According to USDA’s weekly export and sales report for the year 2022-23, four Lakh, twenty five thousand and three hundred bales were sold.
Vietnam was at the top by buying one Lakh, thirty one thousand and two hundred bales. Pakistan is on second with ninety five thousand and six hundred bales. Turkey bought seventy nine thousand bales and ranked third.
Eleven thousand and nine hundred bales were sold for the year 2023-24. Turkey was at the top by buying 6,600 bales. Thailand was second by purchasing 4,000 bales. Colombia was third with 1,300 bales.
So far, China has signed import agreements of twenty two thousand and eight Lakh bales of cotton of American weight, out of them fifteen Lakh eighty nine thousand and five hundred bales have been shipped. At the second place, Pakistan has signed import contracts of nineteen Lakh, seventy six thousand and six hundred bales, out of which 7 Lakh ninety three thousand and 800 bales have been shipped up till now. The reason for such low shipment is the delay in bank L/C due to US dollar crisis.
However, All Pakistan Textile Mills Association (APTMA) has requested the Prime Minister of Shehbaz Sharif to come forward to safeguard the country’s exports and employment as the country cannot afford deindustrialization in Punjab that will lead more layoffs leading to significant unemployment of more than 10 million workers and further deterioration in the balance of payments in the shape of $10 billion exports per annum, as the government under IMF pressure has taken back regionally competitive energy tariff.
In a letter written on Monday to the Prime Minister, APTMA’s patron-in-chief Gohar Ejaz urged the government to create a level playing field by implementing a uniform gas price of $7 per MMBtu for the export industry across the country, maintaining Rs19.99/kWh for the export sector across the country to retain competitiveness across the country and internationally.
He also asked for the first priority for gas supply to captive power plants of the export-oriented sector. Ejaz said that the total cost of regionally competitive energy tariff (RCET), if the differential is treated as the subsidy/ cost is 2.67 percent in the last 4 years from FY19 to FY22. And with the RCET cost of 2.67 percent (Rs260.59 billion) in 4 years, the exports went up to Rs9761.32 billion. The actual cost of service (excluding cross-subsidy is 9.3 cents/kWh which implies that the government is not providing a subsidy to EOUs (export-oriented units) but indirectly to other sectors primarily the domestic sector.
“The narrative that the government subsidizes the textile sector is; therefore, inaccurate and needs to be revisited. Textile exports witnessed a massive increase of over 55 percent in just two years, from $12.5 billion in FY2020 to $19.5 billion in FY2022 as a direct consequence of the competitive energy tariff,” the letter said.
Extreme cash flow problems and high production costs have greatly damaged the prospects for growth in exports and adversely impacted the textile industry. Exports are declining consistently both in value and quantity. The government’s immediate intervention is needed to check the drastic decline in exports.
In a statement, the leadership of Pakistan Textile Exporters Association (PTEA) termed severe liquidity crunch and high production costs as major causes of decline in exports. They appealed to the government to rescue the ailing textile industry.
Massive working capital of textile exporters has been held up in sales tax, income tax, provincial sales tax refund regime, increasing the financial stress as the textile exporters are unable to enhance their exports turnover. The working capital requirements have significantly increased due to exchange rate adjustments.
Furthermore, they said that despite firm commitment of ensuring its completion within 72 hours, the processing of sales tax refund claims under FASTER system has been delayed for a month. The processing of regular and deferred sales tax refund claims has also been suspended for over a month.
The situation has been further complicated as the initiatives announced in textile policies under incremental exports scheme (DLTL), Mark-up Support and technology upgradation fund scheme are still unpaid. Ready for payment DLTL claims have also been stopped.
All this is having an adverse impact on the employment and the economy of the country. Lack of basic working capital has been a cause of serious concern for exporters and a major setback to the industry, they said. The government should set its priorities right and accord preferential treatment to boost exports and generate industrial activities.
Describing high cost of production as another major issue, the PTEA is of the view that abrupt policy reversals are immensely damaging the pace of exports. Withdrawal of Regionally Competitive Energy Tariffs (RCET) will turn out to be hugely disastrous for the Punjab-based textile industry, which is already facing the problem of non-viability within the country.
The withdrawal of RCET for electricity at Rs19.99/ kWh will render the textile industry, especially in Punjab, uncompetitive within the country, as well as, the region. Difference between electricity prices in Punjab and Sindh is more than 3.65 times as EOUs in Sindh can generate electricity at Rs11/ kWh from gas being provided at $4/ MMBtu while Punjab gets RLNG at $9/ MMBtu.
Industries in Sindh are using low-priced gas for their needs, whereas highest revenue-generating Punjab-based industries are compelled to use high-cost RLNG for their production, which is an injustice.
The government must take cognisance of the serious matter and step up to save Punjab-based industry from disaster as high energy cost is holding it back from realising its full potential. This is all the more needed given the uncertain economic conditions prevailing in the country, they added.
The government should encourage export and export-oriented sectors to have long-term sustainability in balance of payments. Textile exports witnessed a massive increase of over 55 percent from $12.5 billion in FY 2020 to $19.5 billion in FY 2022 as a direct consequence of the competitive energy tariff.
They urged the government to implement the Weighted Average Cost of Gas (WACOG), the only workable solution that allows the creation of a combined and logical gas market.
The government must take cognisance of the serious matter to safeguard the country’s exports and employment. The textile industry is the only hope for revival of the country’s economy which is currently jolted by high cost of doing business.
A joint meeting of Pakistan Cotton Broker Association regarding cotton trade was held at Multan Pakistan Cotton Ginners Association office in which PCGA Chairman Chaudhry Waheed Arshad, Vice Chairman Rana Waseem Hanif along with Sohail Haral, Mazhar Shoaib Khan, Malik Sohail Talat. Haji Akram, Hafiz Abdul Latif represented PCGA while Chairman Major Kashif Islam, Vice Chairman Malik Tanveer Tariq Alvi along with Haseeb Ali Jatt, Rana Shafqat, Rana Raheel Shafqat, Abid Zaidi and Atif Islam represented Pakistan Cotton Brokers Association. Both sides had a thorough discussion on various issues and in the future both institutions jointly assured mutual cooperation with each other.
Copyright Business Recorder, 2023
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