Pakistan has an agro-based economy and the country is
heavily dependent on imported energy products. As country’s trade deficit is
mounting there is need to revisit government policies. The other alarming
factors are: 1) extensive borrowing to meet the budget deficit and 2)
deceleration in remittances. The added problem is that with the commencement of
winter industrial units, particularly textiles units are likely to be a major
sufferer and exports of textiles and clothing destined to plunge.
As stated earlier, Pakistan is heavily dependent on
imported energy products; any hike in crude oil prices does not bode well for
the country, though capital market analysts term the hike good for E&P and
downstream companies listed at Pakistan Stock Exchange (PSX). A stronger dollar
is likely to keep commodity prices in check, but also expected to make imported
commodities more expensive.
Pakistan Steel is closed for months and there are no
signs of its commencing production in the near future. Its price has posted
16.4%MoM increase in November, as Chinese producers re-align supply and the
government implements a policy of curtailing supply. This is likely to cause further hike in steel
price, which does not bode well for Pakistan
Pakistan is a major user of coal, in cement industry. Coal
price drop on Chinese relaxation on mining controls: After reaching a 5-year high,
coal price has fallen to US$83.5/ton as the government asked the coal miners to
lift up output till the end of end of winter heating season to counter the
surging price. The coal price decline has remained slower as the Chinese coal
producers were unable to ramp up production quickly due to medium-to-long term
supply contracts and time to bring back coal mines into production.
Nonetheless, normalizing of seasonal demand post-winters, will likely witness
further fall in coal price as China will continue its policy to do away with
coal based energy.
Fertilizer is one of the major industries of Pakistan and
currently suffers from poor capacity utilization. Added to this is, extremely
low international prices of urea, affecting the earnings of local manufacturers.
In November its prices rose to US$224/tons as compared to US$201/tons a month
ago. While continuing to recover from lows of US$172/ton seen in July
2015, urea prices remain down 8%YoY as oversupply and weak demand continue. On
the domestic front, recovery in international prices is likely to enhance
pricing power of local manufacturers, who are already plagued by lower off-take.
However, further recovery in off-take remains more likely to be a product of
price reduction.
Global cotton prices during November remained higher as
compared to last year (up 14%YoY) on the back of continued price recovery. The
monthly USDA report featured an increase in global annual production up to
103.3 million bales and virtually no change to world mill-use, resulting in
additions to global stocks. Following the global trend, prices in the domestic
market remained on the higher side in November. Despite higher-than-expected
phutti arrivals, prices of quality cotton move higher because of sustained
buying by mills and spinners. Moreover, temporary ban on cotton import from
India kept demand of local cotton robust.
This year Pakistan is likely get another bumper crop of
wheat but of no benefit. While the surplus can’t be exported, post harvest
losses are feared to increase due to inadequate storage facilities. Lack of
supporting policies has failed in attracting investors to construct modern
warehouses and collateral management companies. Absence of modern silos results
in up to 20 percent post harvest losses. Saving this could boost income of
farmers and also bring down price of staple grain n the country.
