Cotton, which has assumed a leading role in
Pakistan's economy, currently has become a talking point due to
unexpected worldwide decline in cotton prices which may consequently
affect economics of the textile producers in the short term.
However, if the textile exporters maintain the
unprecedented momentum of the last year, the textile exports may gain
the benefit out of the current bearish trend in the cotton market, which
according to Iqbal Omer, Chairman Karachi Cotton Association (KCA) may
continue to persist for another two months.
The textile producers, it may be mentioned, besides
purchasing from the local market had also imported cotton in view of
growing consumption and growing demand for cotton yarn and fabric in the
The unexpected fluctuation in the market both at home
and abroad has brought a massive loss of about 15 cent per pound in
April as the average price was 61 cent per pound as compared to the
prevailing prices of $45 cents a pound in the New York market. The
drastic fall in cotton prices has led to a bearish market in Pakistan,
which according to experts may continue to persist in next 2-6 months.
However, this bearish trend in the local market is a test for the
business acumen of our traders who has the holding power. My take
advantage by lifting cotton at a cheaper rate to get advantage in the
later part of the year. It will be time when the market will certainly
boom due to increase in demand of cotton by all the segments of the
textile sector. The demand for cotton yarn, fabric as well as garments
is continued to rise despite a decline in cotton prices. The price per
unit in the export market was also encouraging. The current situation is
certainly a crucial moment for the textile business, which may go either
way; it is yet to be seen how the industry plays its business cards at
home as well as abroad.
The current local prices of cotton were reported at
Rs2500 which are being expected to record a further low up to the level
of Rs2200 while the New York prices are also likely to dip from
prevailing price of $48.68 to $45 expected by the local traders. In view
of the uncertain situation, the mills were seen taking extra care while
lifting cotton from the market due to fear of further decline.
Traditionally speaking the textile producers lift
cotton at least three months in advance to meet their requirements.
Hence those mills that had bought cotton at a higher price three months
back are said to be facing a threat to their economics. These textile
millers however were taken aback by the sudden change in the cotton
prices which sharply declined as soon as the news appeared that the
China and other cotton producing countries have a bumper cotton prices
this year. According to market sources, the textile mills currently have
at least three million bales in stocks, which were either bought from
the local market or imported to meet the growing consumption due to
rising demand in the international market.
Generally speaking, the purchase price three months
back was around 60 cent per pound as against the prevailing prices
around 43-45 cent per pound. Obviously, the local prices have also come
down to the level of Rs2500 per maund as a sequel to the sharp decline
in the international market.
It is said that due to fear of further decline in
prices the miller were seen purchasing cotton only for three to four
days consumption to avoid any further loss. The local prices are under
pressure of the international market, which is currently flooded with
over-production. Most of the cotton producing countries was facing
surplus production, especially China and United States.
Cotton based textile products in fact plays a pivotal
role in the overall exports from Pakistan. The contribution by the
cotton textiles worth around $ 9 billion in the total exports of around
$12.2 during 2003-04 speaks volumes of importance the cotton based
exports meant for Pakistan's economy. This year too, the government has
set a target of $13.7 billion. Obviously, the major part of this target
has to be contributed by the cotton-based exports. That means that
cotton is highly important element, which has to be looked after by the
economic manager in all respects.
However, the profit and loss essentially is the part
of the trade, yet in our society people generally look for compensation
in one form or the other from the government. In case of a windfall
profit they never like to share the joy neither with the consumers nor
to the government exchequer.
The government on its parts has taken various
measures to support cotton and textile industry. In this connection, the
CBR has increased duty drawback on the export of wide range of polyester
staple fibre based textile products including 100 percent polyester
stable fibre yarn and polyester-viscose staple fibre blended yarn from
July 1, 2004.
The textile sector had strongly opposed the drastic
cut in the duty drawback rates of polyester staple fibre based textile
products. The duty drawback will also be enhanced on the export of grey
blended garments, wearing apparel and other made ups all blended with
polyester fibre. The prompt action by the CBR acceding to the demands of
the textile sector may have a good impact on the overall performance of
this leading export sector in Pakistan's economy.