Showing posts with label Textiles and clothing exports. Show all posts
Showing posts with label Textiles and clothing exports. Show all posts

Sunday, 5 March 2023

Pakistan must get ready to import cotton

Cotton arrival in Pakistan decreased 34.5%YoY shows data released by the Pakistan Cotton Ginner’s Association (PCGA). The Government of Pakistan must announce ‘Cotton Import Policy’ at the earliest.

It may be recalled that in the past cotton import was allowed from India, but last minute change in policy causes serious problems for the millers and also plunged export of textiles and clothing from Pakistan.

According to the report, cotton arrival in Pakistan declined to 4.875 million bales as of March 01, 2023 as compared to 7.442 million bales during the same period last year, a fall of 2.567 million bales or 34.5%.

The decline in cotton arrival is attributed to the flash floods in Pakistan, which devastated large swathes of agricultural land in the country, especially in Sindh and Baluchistan.

Cotton is an essential raw material for the country’s textile sector and the situation is alarming for Pakistan’s cash-strapped economy, which is already facing depleting foreign exchange reserves.

As per the PCGA data, cotton arrival reported a steep fall in Sindh. Cotton arrival in the province was reported at 1.879 million bales.

Similarly, cotton arrival in Punjab was reported at 2.996 million bales as compared to 3.929 million bales a year ago.

Industrialists have expressed concern over the ongoing slump in the textile sector. All Pakistan Textile Mills Association (APTMA) has urged the federal government for a level playing field by implementing a uniform gas price of US$7 per MMBtu for the export industry across the country.

APTMA also warned that the decision of the government to suspend the regionally competitive energy tariff (RCET) of electricity for Export Oriented Units (EOUs) will hurt the textile industry, particularly in Punjab.

 

Friday, 26 August 2022

Pakistan: Unlocking Economic Potential

This year Pakistan celebrated Independence Day (August 14), when the clouds of imminent default were getting thicker. Despite having complete faith in the economic resilience of Pakistan, people are worried about the ballooning ‘confidence deficit. They believe that breaching current account deficit as well as budget deficit is possible but overcoming confidence deficit may take years.

The brighter side of the story is that International Monetary Fund (IMF) is likely to release promised branch of about US$1.2 billion. This will pave the way for the inflow of foreign exchange from friendly countries and other multilateral lenders. At present the biggest support is coming from overseas Pakistanis who are sending around US$2.5 billion every month.

In last financial year, exports of textiles and clothing touched record high level. Now it is the responsibility of the policy planners to ensure there is no dip in export of textiles and clothing. The chances are bright because Pakistan is likely to get certain concessions under GSP Plus system.

It is my estimate that Pakistan is capable of earning more than US$50 billion per annum from export of textiles and clothing. However, to achieve this, Pakistani farmers have to double indigenous production of cotton to take textiles and clothing exports to the next level.

Since Pakistan’s exports of textiles and clothing are concentrated in United States and European countries, improvement in quality standards can boost ‘Unit Price Realization’ significantly. However, the target can only be achieved by ensuring uninterrupted supply of electricity and gas to the manufacturers at affordable cost.

A cursory look at the reasons of burgeoning current account deficit shows that import bill on energy products and edible oil are the two culprits. While boosting of oil and gas may take some time, shortfall of edible oil can be overcome by focusing cultivation oil seeds that include cotton, sunflower and canola. Nearly 50% reduction in the prices of palm oil is likely to reduce import bill of edible oil significantly. Similarly, crude oil prices are on the downwards trajectory.

This year Pakistan has been forced to import wheat due to its production below the target. Some analysts are of the view that if 20% wheat that goes stale before reaching the market can be saved, the country may not need to import the staple food, but extra foreign exchange would be earned by exporting the saved quantity.

Analysts fear that a significant quantity of wheat is smuggled to the neighboring countries. Pakistan can earn substantial foreign exchange if wheat and other food items are exported through the official channel.

Having reached at the consensus that Pakistan has to produce exportable surplus, supporting policies have to be evolved and implemented. These include operating fertilizer plants at or above name plate capacity. It is necessary to bring it at record that as against an installed capacity capable of 7 million tons urea annually, the country produced around 6 million tons. An additional one million tons of urea can be produced by supply ‘full required’ quantity of gas to urea plants.

At the prevailing global prices of urea, Pakistan can earn significantly foreign exchange by exporting urea, part of this may be used to import LNG or meeting the difference in cost of generation when furnace oil is used.

At stated earlier saving the wheat from going stale or containing smuggling its smuggling is possible. Government has to ensure construction of modern storage silos capable of storing up to 50 million tons to store wheat, rice and maize.

The central bank has already announced an incentive ladden plan for the construction of silos. It is necessary to share the news that warehouses have issued warehouse house receipts worth PKR100 billion electronically. However, this is only tip of the iceberg. Now it is the responsibility of the Government of Pakistan, central bank and commercial banks to convince the farmers to store their produce at the modern silos.

It is often said that indigenous production of oil and gas is constantly doing down. This process can be decelerated by drilling more exploratory and production wells. Along with this refineries operating in the country have to be up gradated to produce higher distillates.

This year Pakistan has once again faced floods, which has once again highlighted the need for the construction of dams. It is known to all and sundry that Pakistan is capable of producing more than 40,000MW electricity from hydel plants.

A lot of time has been wasted in finding justifications for some disputed dams. Analysts are of the view that Pakistan should establish ‘run of the river, type hydel power generation units. These are not only low cost but can be constructed within shorter span of time.

The added advantage is that cost of electricity produced from hydel facilities is one tenth of the cost of electricity produced at thermal plants. These hydel power plants can be constructed closer to the point of consumption. There will be no need to construct long transmission lines and transmission. The additional advantage is reduction in the transmission and distribution (T&D) losses.   

 

 

 

Thursday, 17 February 2022

Pakistan textile exports rise to US$11 billion

According to the data released by Pakistan Bureau of Statistics, Pakistan textile exports has witnessed a record exports of US$11 billion in first seven months of the current financial year (FY22), up by 25%YoY. In PKR terms, the exports yielded Rs1.861 trillion, up 30%YoY due to 4% depreciation of the local currency.

For 7MFY22, the key export driver was increase in value-added exports where knitwear segment contributed the most as it increased by 33%YoY to US$2.9 billion, followed by Readymade garments, up 22%YoY to US$2.2 billion and Bedwear up 19%YoY to US$1.9 billion exports.

However, on MoM basis, Pakistan textile exports were down 4% to US$1.5 billion in January 2022, due to lower value-added exports segments mainly in Knitwear, down 12%MoM and Ready-made garments, down 4% MoM.

As compared to last year, Pakistan’s textile exports were up by 17%YoY in January 2022 led by significant recovery witnessed in value-added segments, largely in knitwear, up 19%YoY, Ready-made up 17%YoY and Bedwear, up 21%YoY.

The volumetric growth and improved pricing were the key drivers resulting in higher exports.   

Going forward, analysts expect textile exports to remain robust in the remaining months of FY22 fiscal and may touch US$19 billion.

Ease of lockdown in European economies is likely to drive increased orders and help overall textile exports.

The Federal Cabinet on February 15 approved the Textile and Apparel Policy 2020-25, after Ministry of Commerce (MoC) submitted the revised draft of textile policy to Economic Coordination Committee (ECC) incorporating few amendments.

The key reason behind the late approval was the dispute between MoC and Energy Ministry on the issue of Energy Tariffs, specifically RLNG and Electricity.

As to the sources, the updated draft stated that Energy Tariffs (RLNG and Electricity) will be provided to textiles and apparel industry at regionally competitive rates during the policy years. For this, tariff will be reviewed and announced in federal budget by Finance Division.

§  As per Pakistan Institute of Development Economics (PIDE), the average regional electricity tariff rate stood at 7.4 cents/kWh in Mar-21, which we believe has likely increased since than. Pakistan’s current electricity tariff is around 9 cents/Kwh. 

§  In case of RLNG, the average regional RLNG rate stood at ~US$4/MMBTU as per PIDE vs. Pakistan’s tariff rate at US$6.5/MMBTU. We believe the above stated textile policy will have a neutral impact on the sector. Given, Pakistan is already offering subsidized energy & RLNG tariffs to textile players and Pakistan being part of an IMF program, a further reduction from the current levels is highly unlikely. 

§  RLNG tariff is expected to remain intact at US$6.5/MMBTU level although regional average is comparatively low. To note, RLNG is currently being provided at US$9/MMBTU to textile sector till March-22 due to supply issues.

§  Subsidized energy rates, increasing export numbers, and currency weakness bodes well for the sector. We have an ‘Overweight’ stance on Textile Sector with Interloop Limited (ILP) and Nishat Mills Limited (NML) as our top picks.