The spinning industry has lost Rs 50 billion on carryover stock of 1.6 million cotton bales with decline in cotton prices from $2/lbs to $1/lbs, said industry sources. Sources further said that the spinning industry was on the brink of default and the number of sick units likely to increase.
The State Bank of Pakistan (SBP) said last Friday that high interest rate, power outages, poor law and order, and unclear taxation policies are hurting development finance (DF) in the country. Non-performing loans (NPLs) of DF sector have registered a healthy growth of 21 percent to a record level of Rs 164 billion in March 2011. The DF sector has witnessed a slowdown in the last few quarters and the total DF portfolio declined to Rs 840.6 billion, showing a decrease of 1.9 percent on YOY basis.
The spinning industry sources said the liquidity crisis, oozing out of sharp decline in cotton prices, is likely to turn spinning mills into junkyard. They said that the chairman Aptma has rightly demanded one-off subsidy on interest rate by remitting it to 5 percent on all long and short term loans on balance sheets until 30th June 2011.
It is worth noting that India has already extended similar facility to its cotton exporters and spinners, offering 7.5 percent drawback on exports of each with retrospective effect to avoid crisis. The Indian Textile Ministry has offered drawback to both cotton exporters and spinners from October 1, 2010 and April 1, 2011 respectively.
The industry circles fear that Pakistan cotton exporters could not export more than one million bales despite free market mechanism in the country. Therefore, they said, the spinning industry would have to procure major chunk of bumper cotton crop from the growers.