Pakistani Mills Look For The Competitive Edge
March 23, 2009 Pakistan’s cotton and textile industries have adapted to changes in the global cotton trading environment during recent years by investing more than U.S. $6 billion in production and technology upgrades. Because of that, Pakistan’s domestic consumption has surpassed production by about 3 million bales. But even with increasing consumption, Pakistan’s textile industry faces several factors, both internal and external, that affect its competitive edge in global trade.
An increase in production costs because of the heavy cost of credit finance and government levies and taxation have weighed heavily on the industry, while domestic cotton has not met qualitative needs of the growing spinning and textile sectors. Pakistan’s downstream users have also impacted the market, as industries lag behind competitors like China, India, Bangladesh and Sri Lanka in terms of efficiency, productivity and advancement in technology to meet quality and other criteria of buyers.
In addition to those internal industry factors, several external forces have also impacted Pakistan’s textile sector, including:
• Government-backed supportive policies and heavy subsidies of our regional rivals like China, Bangladesh, India and Sri Lanka.
• External trade and tariff barriers, such as high import duties by the U.S. and anti-dumping duties by European Union.
• Pakistan’s loss of preferential access under the Generalized System of Preferences (GSP) in the E.U.
Many mills have incurred losses during the last two years. Those mills which could not adopt the necessary changes in the new business environment because of their financial restraints and heavy liabilities have experienced the greatest losses. To make their projects viable and to minimize losses, mills are generally curtailing their production by going into fine count yarns or closing parts of their units.
Current Forecast
Pakistan emerged as a major player in world cotton trade after a phenomenal increase in its spinning capacity in the last few years. Traditionally, most of the mills in Pakistan still prefer to use Pakistani cotton due to its known spinning characteristics and easy availability for making medium-count yarns. But many mills have now developed permanent plans and blends based on imported cotton to bridge the shortfall in the local cotton supply.
In the past, only those mills producing fine-count yarn were importing long-staple and extra-long-staple cotton from the U.S., Egypt and CIS, but now due to a wide gap in supply/demand and to meet the changing quality requirements, mills are buying sizeable quantities of medium-staple cotton of different growths. Mills have gained good experience in buying different growths of cotton, and they now use different options to buy different growths, both on a fixed prices basis as well as an on-call basis for future shipments.
Recently, some mills have bought about 15,000-20,000 tons of Brazilian 2008 crop on call basis for shipment in 2008, and several other mills are inquiring to buy Brazilian cotton on the same basis. Some Brazilian businesses have reported as far as 2009. Some of the mills use this mode of buying to secure their short position in Pakistani cotton. If domestic price goes up, they opt to take shipment, and if prices come down to their desired level, they mange to get their import contracts settled with the shipper with mutual consent.
The U.S, Brazil, India, Egypt, CIS and Africa remained the top suppliers of raw cotton to Pakistan in 2004/05 and 2005/06. India has significantly gained its share in the Pakistani market significantly and become a top supplier of cotton in 2006/07 due to its geographical position and competitive prices during the season. Moreover, mills in Pakistan are accustomed to Indian Shankar-6, MCU-5 and J-34 varieties, and they have no hesitation to book sizeable quantities of Indian cotton. If import of cotton through the Wagah border (joining Pakistan and Indian Punjab provinces) is allowed, India will have direct, easy and inexpensive access to the Pakistani Punjab province, where most of the spinning mills in Pakistan are located.
According to private estimates, about 2.5 million bales of different growths have been booked in 2006/07 through the end of April. By February 2007, about 1,900,521 bales (170 kgs each) had reached the country. Pakistan may need to buy another 300,000-400,000 bales, which they may cover mostly from U.S., Brazil, West Africa and Uzbekistan.
In the post quota era, Pakistan has moved towards producing fine count, high grade and contamination-free yarn to meet changing requirement of buyers. With the rapid expansion in the use of air-jet weaving machinery and of long- and extra-long-staple cotton, Pakistan is becoming a major source of high-grade fabrics. Mill viability is likely to be improved in the immediate future as the government is working on a plan to make textile exports zero-rated to enhance exports of textiles from Pakistan.
In order to integrate cotton cultivation with the qualitative and quantitative requirement of the rapidly growing textile industry, the government has finally adopted biotechnology crops in Pakistan by allowing cultivation of Bt cotton varieties from the current season to maximize cotton production. Bt genes have been successfully incorporated in approved cotton seed varieties which have rendered positive results on field trials.
| Pakistan’s Supply And Demand | |||
| 05/06 | 06/07 | 07/08 (E) | |
| Beginning Stock | 4.45 | 3.50 | 3.00 |
| Production | 12.40 | 12.40 | 14.20 |
| Imports | 2.05 | 2.85 | 2.20 |
| Total Supply | 18.90 | 18.75 | 19.40 |
| Consumption | 15.00 | 15.50 | 16.00 |
| Exports | 0.40 | 0.25 | 0.40 |
| Ending Stock | 3.50 | 3.00 | 3.00 |
| Total Distribution | 18.90 | 18.75 | 19.40 |
| (all figures in million bales of 170 kg. each) | |||
The official target for Pakistan’s 2006/07 crop is 14.14 million bales (weighing 170 kgs each) from an area of 3.26 million hectares. Private production estimates are even more optimistic and are in the range of 14 to 15 million bales. Furthermore, the government has devised a strategy “COTTON VISION 2015” to achieve cotton production of 20.70 million bales target by 2015.
The new crop sowing was delayed this year by 10-15 days due to a late harvesting of the wheat crop. Sowing is progressing well under ideal weather condition. It is completed in some early harvesting areas and is likely to be completed in rest of the areas by the month of June.
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