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LOW Source:
Pakistan Deaths
Pakistan Cases
1.45% positivity

Annual growth in the production of cotton yarn and cotton cloth has suffered stagnancy over the last few years. Would this year be any better than the last given the host of incentives recently provided to the textile sector?

Analysis of the production data of these two items tracked by the Large Scale Manufacturing (LSM) index of Pakistan Bureau of Statistics, shows that since FY09 the growth in production of both cotton cloth and cotton yarn has been zero, or otherwise negligible ranging from 0-2 percent (barring a few exceptions). (See illustrations)

In fact, over the last three years cotton yarn production has barely moved with annual average increase of 1 percent. Cotton cloth production has followed a similarly pattern with an average growth rate of 0.23 percent over the past three years. Hold on to that thought and consider this.

For more than ten years, the six-month production numbers for both cotton cloth and cotton yarn, tracked by the LSM index, have been 50 percent of the full-year numbers. Going by those trends, the production of cotton cloth in FY18 is estimated to be 3.42 million tons while cotton yarn output might stand at 1.05 billion square meters. This would translate into ‘ZERO’ increase in production of what are undeniably the key inputs in textile value-chain.

This estimate has also been confirmed by various textile players in the spinning and weaving segments who expect little to no growth in full year production numbers of cotton cloth and cotton yarn.

What then explains the lack of production growth in these two segments? Industry experts including Azizullah Goheer, Secretary General of Pakistan Textile Exporters Association (PTEA) believe the rising cost of production has been a bane for spinning and weaving mills.

This has been particularly for smaller players in these sectors. Almost 35 percent of the total conversion cost in the textile value chain is energy but the electricity and gas tariffs being charged from the domestic industry are the highest in the region.

In a recent interview with BR Research, Aamir Fayyaz, Chairman of the All Pakistan Textile Mills Association (APTMA), highlighted that more than 100 textile companies have shut down completely because of challenging business environment in the country, including about Rs13 billion of working capital stuck under sales and income tax refunds.

Meanwhile, industry sources say that the disbursements under the export package, which was touted to kick start production in cotton yarn and cloth by way of the spillover effect, have been no more than 20 percent of the promised amount. Thus, a limited impact on exports.

On the other hand, cotton production has also suffered making the raw material more expensive and harder to procure for spinning firms. Even though there was a slight growth in cotton output in FY17 at 10.8 million bales, this was only due to the low base affect as cotton production was abysmal in the preceding year standing at 9.9 million bales.

As the State Bank of Pakistan (SBP) notes in its State of the Economy FY17 report, cotton crop still remains under pressure as the output in FY18 has remained considerably lower than the average of 13.3 million bales for three years preceding FY16.

Taking into account the historical trends, as well as the decline in both cotton production and lower spinning capacity, it is likely that growth in the textile sub-index of LSM will gravitate towards zero for the full year FY18.

Copyright Business Recorder, 2018


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