LAHORE: The local market on Monday remained steady and the trading volume remained satisfactory. Cotton Analyst Naseem Usman told that rate of cotton in Punjab and Sindh is in between Rs 20050 to Rs 22000 per maund.
Coordinator Federation of Pakistan Chambers of Commerce and Industry Talat Sohail termed the budget as balanced in difficult economic conditions and expressed his concerns over cotton. Finance Minister mentioned crops like sunflower, canola etc.
But unfortunately did not mention cotton. However, cotton contains 60% cotton seed which produces edible oil. The increase in cotton production is due not only to cotton lint but also to edible oil.
In the budget proposals, we had demanded abolition of taxes on Cotton seed oil, cotton seed and oil cake. This can lead to difficulties and obstacles in increasing cotton production.
Several ministers, including the finance minister, supported our demand but did not even mention it in the budget. Only increase in cotton production can lead to appreciation of rupee, reduction of unemployment and stabilization of economy.
Home textile industry loses market share to China, Pakistan as high cotton prices pinch.
Cotton prices have seen a sharp spike due to non-availability of cotton, but the report adds that these elevated price levels are unsustainable and expect it to normalize after another good cotton season.
Trouble for the industry, the report says, stems from the fact that raw cotton prices in India increased YoY and are currently at par with international prices.
The Home Textile industry is facing significant headwinds given the rise in input cost, logistical challenges, inflationary pressures, and a volatile global environment, which is putting untoward pressure on margin and demand.
What is even more worrying is that China and Pakistan are chipping away at the market share of Indian cotton imports in the US, says a recent study.
A report by Motilal Oswal Financial Services Ltd says as per OTEXA data, India’s market share in US cotton sheet imports fell to 50% in 4QFY22 from 60% in 4QFY21, whereas China and Pakistan gained about 5% market share each. In the Terry Towels segment, India’s share has fallen by 300bp to 40% in 4QFY22 (v/s 43% in 4QFY21), while China/Pakistan’s share remained constant at 20%/23%.
Trouble for the industry, the report says, stems from the fact that raw cotton prices in India increased YoY and are currently at par with international prices. As yarn and fabric prices are rising in tandem, companies are facing a huge challenge in terms of passing on higher prices internationally.
“What has exacerbated the matter is that depreciation in the US Dollar (USD): Pakistani Rupee (PKR) helped Pakistan gain market share in the US and Europe as buyers see better pricing for its products. USD: PKR depreciated by 21% as against a 6% depreciation in the USD: INR from Sep’21 to May’22. However, the expected signing of the FTA with the UK and Europe will bring Indian products on par with that of Pakistan,” says the report.
Cotton prices have seen a sharp spike due to non-availability of cotton, but the report adds that these elevated price levels are unsustainable and expect it to normalize after another good cotton season. International/Indian cotton prices rose 54%/61% YoY to USD3.11/INR237 per kg in Mar’22. Further, International/Indian prices surged 10% each to USD3.42/INR260 per kg in Apr’22. Changes in India’s import duty on cotton (reduced to nil in Apr’22 from 10%) may deliver some net benefit for the industry in general, the report added.
When it comes to outlook, companies involved in the sector say although there are significant headwinds in the near term, they remain positive on demand in the mid to long run, due to expansion in export opportunities on account of the Foreign Trade Agreements (FTA) signed by India with nations such as Australiaand the UAE. An FTA with the UK is expected to be finalized soon. Discussions on the FTA with Europe are set to begin by Jun’22. “Such FTAs, along with the government’s steps to support the Indian Textile exports, reflects positively on the long-term outlook for the industry,” says the report.
The Spot Rate remained unchanged at Rs 21000 per maund. The Polyester Fiber was available at Rs 310 per kg.
Copyright Business Recorder, 2022