Lately, polyester staple fibre (PSF) price has
increased by Rs 4/kg going up to Rs 88/kg. This marks the second major
increase in two months. The reason for this upward revision is the
constant increase in PTA and MEG prices, the two-key raw materials.
During September PTA prices increased by 6% and MEG prices went up by
3.6%. PSF prices are expected to remain high in the near future due to
the rising oil prices. However, that may affect PSF demand adversely due
to declining cotton prices. Cotton prices have been on the decline
mainly due to an expected bumper cotton crop in Pakistan as well as in
other major cotton producing countries.
According to a KASB Securities report, "We are
of the opinion that the local PSF prices are still a shade below its
international prices, because the local producers have not been able to
pass on the entire impact of the cost increase to the consumer. The
recent price increase is likely to provide much needed breathing space
to the manufacturers, who have been struggling to pass on the cost
increases." Therefore, it becomes necessary to have a closer look
at PSF sector, particularly the expansion plans.
PSF sector has come a long way and shown volumetric
growth with an upsurge in demand touching 565,000 tons annually. The off
take is expected to exceed 620,000 by year 2005. The industry has been
marked by an oversupply situation due to the expansions in last two
years. Keeping in view the rising demand, Ibrahim Fibres has initiated
yet another expansion plan. After the completion of this plan, total
production capacity of Ibrahim will be doubled. ICI Pakistan has also
announced to add another 15,000 tons capacity to its existing
The growth pattern of the PSF stems from ever-growing
textile industry of Pakistan. With constant addition of new spindles and
lower then required production of cotton in the country, PSF demand has
been growing in double digits. Yet another factor fueling PSF demand has
been the shift in blending pattern with cotton. Though, the ratio of PSF
has gone up in Pakistan, it is still below the international standard.
This can only be attributed to the difference in climatic conditions of
Pakistan and the major buyers of textiles and clothing from Pakistan.
According to textile sector experts, local industry
has spent over 4.5 billion dollars for BMR as well as technological
advancement. The forecast was that next couple of years would be a
booming period for the local PSF manufacturers. However, the hopes are
dampening due to declining cotton prices around the glob. Therefore, the
economic viability for producing 100% cotton yarn or blended yarn has to
be reworked. There are two points of views regarding the outlook for
local PSF industry.
One group strongly believes that the PSF
manufacturers will once again end up with 'oversupply'. Their point of
view is based on forecast or bumper cotton crop and its declining
prices, which yield PSF unattractive. However, they are also of the view
that the oversupply is a temporary phenomenon. No one can predict the
size of final crop with certainty. More importantly, because the entire
crop has not reached the ginneries and it is still exposed to climatic
As opposed to this, supporters for additional
capacity say, "The PSF demand in Pakistan is expected to cross
620,000 tons mark and the additional capacities may not be sufficient to
meet the burgeoning demand if spinners decide to match the global
standard of blending. Besides, keeping in view the year to year
variation in cotton out put in Pakistan, ample capacity for PSF should
always be there." They also say that PSF is not a substitute for
cotton, it complements cotton.
The major market share of PSF is enjoyed by two
companies, Dewan Salman Fibre and Ibrahim Fibres. It is often said that
in the declining margins environment Ibrahim has better shock absorbing
capacity mainly due to its proximity to end users of PSF. The other
factors contributing to its strength are plant efficiency and relatively
lower cost of production. It is also said that that now Ibrahim has
attained the power to set the PSF selling price in the domestic market.
At present Dewan Salman enjoys the largest share of
39% in terms of installed capacity. The other major producers are
Ibrahim (34%), ICI Pakistan (18%), Pakistan Synthetics (5%) and Rupali
(4%). However, once Ibrahim's additional capacity comes on it will
emerge as the largest producer of PSF in the country. Ibrahim is at set
to double its PSF production capacity from present 208,600 tonnes to
438,000 tonns per annum.
However, some analysts are of the view that the
recent takeover of management control of Allied Bank of Pakistan by the
Ibrahim Group may put some constraints on its PSF expansion plan.
However, others say, "Liquidity or mobilizing funds was never and
will never be a problem for the Group. It is keener to add capacity
during the lean time, as it has done in the past. Commencement of
production during lean time provides enough time to overcome the