Lower cotton prices have bailed out the spinning industry to some extent and some closed units likely to resume production. However, industry experts said that the impact of lower cotton and yarn prices is likely to be visible only after the release of the export figures of September, this come into sight on Wednesday.
The benchmark indicator prices of cotton decreased 11 percent, while rates of 30/s yarn edged down 0.6 percent in August, showed the data. This implies an additional margin of 10.4 percent for spinners, offsetting the high cost of energy and providing reprieve to ailing textile units.
According to spinners, the lower cotton prices were not Pakistan-specific as they tumbled elsewhere as well particularly in India that is emerging as the worldâ€™s largest producer of cotton.
On analyzing the trends in India, it is found that the prices of new cotton crop declined by 4.1 percent in August but the rates of widely used 30/s count yarn came down by only 2.5 percent, providing Indian spinners an additional margin of 1.6 percent.
Pakistanâ€™s leading spinner M I Khurram is of the opinion that the lower cotton rates are a temporary phenomenon but the high power cost is going to stay.
The impact of lower cotton prices is now being transferred to cotton yarn as well and yarn prices are also sliding. Almost all the spinners bought the yarn consumed in August at much higher prices.
Traditionally, cotton prices in Pakistan are lower than those of China and India. But, the trash content in Pakistani cotton is very high compared with almost zero trash in Indian and US cotton (China does not export cotton).
In November 2013, Indian Shanker variety was available to spinners at 82.09 US cents, while the spot rate at Karachi was 72.50 US cents. Indian cotton rates peaked to 90.63 US cents in May 2014. The rates of Pakistani cotton reached 82.72 US cents per pound.
In rupee terms, the rates of Pakistani cotton in November 13 were Rs6456 per maund (37.4 kilogrammes) that went up to Rs6785.00 per maund in June this year. In August, the rates dived to Rs5401 per maund. The cotton rates stabilised at this rate throughout September.
But the cost of doing business is very high in Pakistan compared with China and India. Despite buying cotton at lower rates than India in November 2013, the price of 30/s Pakistani yarn was higher than that of India. Against 3.19 charged by the Indian spinners for one kilo of 30/s yarn, the price of similar Pakistani yarn was $3.32 per kilogramme.
This explains the sharp decline in Pakistani yarn exports during the past 10 months. Compared with this, a superior Chinese yarn of 32/s was available at $4.17 per kilogramme because the cotton prices in China have always been 30-40 percent higher than that of India or Pakistan.
While Economist Faisal Qamar is of the view that Pakistani spinners always enjoy higher margins on yarn production than its two main competitors. Although the cost of doing business might have gone up in Pakistan, but Pakistanâ€™s spinning sector is highly efficient. Therefore, the highest investment in textiles is in spinning sector.
As, Pakistan gains $1.62 per kg of cotton converted into yarn for the same 30/s yarn variety when compared to the cotton yarn price of 32/s Chinese yarn after deducting the cost of cotton comes to $0.96 per kg while the Indians gain $1.38 per kg by converting cotton into yarn.
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