Trade deficit: the October slide

October wasn quite the cheerful month as Pakistans exports declined by nine percent and imports increased by eight percent, over the prior month of September. This led to a tremendous widening in the monthly trade deficit that swelled to dollars 1.77 billion. The October import surge ended up increasing the year-on-year trade deficit by nearly three percent.
But the YoY growth in October exports is rather satisfactory, led again by the textile group whose dollar and rupee proceeds increased by 10.5 percent and 21.1 percent, respectively, over last year. The export momentum in various textile items has been carried forward during the month.
The YoY growth in cotton yarn exports is quite stellar. But compared to September, the October yarn exports were down 15.3 percent monetarily and 15.9 percent volumetrically, likely due to lower imports from Chinese mills. During 4MFY13, cotton yarn exports totaled dollars 701.6 million, showing y-o-y growth of 36.5 percent in dollar terms, 49 percent in rupee terms, as shipments grew by nearly 53 percent.
Continued demand from the Chinese textile mills has helped sustain this growth, as they have been purchasing duty-free yarn from Pakistan, India, Vietnam and other countries owing to domestic market conditions in China. Analysts expect this demand-led status quo to persist for a while, until the respective governments decide to intervene.
As for cotton cloth, the exports proceeds increased in tandem with the shipment quantities, despite the volumetric decline. The value-added textiles segment presents a rather mixed picture. The knitwear exports showed acceptable growth in both volume and value, but the bedwear export proceeds declined more than the decrease in shipments, indicating lower demand and rates for the item.
The readymade garments segment showed handsome growth and continued to fetch higher price in October. The YoY growth in leading textile items is explained by improved supplies of electricity and natural gas to the sector relative to last year. Moreover, the prolonged lull in global cotton prices, also, seems to have pushed overseas buyers to make their purchases rather than wait and hold their orders.
Food group exports showed a yoy growth of 5.4 percent to reach dollars 318.6 million in October. Despite the seasonal decline in rice shipments, this growth has emanated from rising export shipments of sugar, meat, wheat, spices, fruits, and vegetables. Over the four-month period now, rice exports have fallen by 25 percent in dollar terms and 18 percent in rupee terms, as shipments declined by over 43 percent YoY.
A nearly seven percent y-o-y increase in petroleum group imports actually fueled the overall import growth during October. The petroleum crude shipments skyrocketed during the month due to increased refining activity. The finished petroleum products imports, however, declined YoY in both value and volume, apparently due to lower demand and prices during the period under review.
Though the fertilizer import picked up in October, growing 37 percent in value and 13 percent in volume over September, it still shows significant YoY decline. The large fertilizer purchases made by the federal government last year have been missing during the period under review.
Despite the October slide, the four-month trade deficit contracted by nearly seven percent YoY to dollars 6.4 billion, thanks to better performance in 1QFY13. The nearly five percent YoY export growth in 4MFY13 came mainly from items like cotton yarn, RMG, jewellery, sugar & fertilizer. Imports fell by 54bps y-o-y, mostly due to dollar decline in items like fertilizer, insecticides, palm oil, synthetic fiber and plastic materials.
Going forward, oil import bill may increase due to expected rise in furnace oil demand in coming months - this will not be a big worry if oil prices continue to remain range-bound. On the positive side, now that the EU waiver on 75 Pakistani export items is in place, the countrys exports may record substantial gains as the Western buyers interest is likely going to deepen in the Pakistani products.

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Foreign Trade (snapshot): Oct FY13

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                       Total     % chg  % chg in

                      (mn $)     $ Y/Y   Qty Y/Y

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Exports               2,016       7.23         -

Rice                    125    (20.21)   (39.47)

Cotton Yarn             171     28.88      37.15

Cotton cloth            222     16.37      11.14

Knitwear                177      4.37       5.91

Bed wear                154     (9.69)    (2.63)

Towels                   66     12.27      19.44

Readymade garments      156     29.29      10.00

Imports               3,790      5.07          -

Petroleum products      717    (11.24)    (0.89)

Petroleum crude         547     45.82      66.43

Trade Deficit        (1,774)    37.84          -

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Source: PBS