IMPRESSIONS from a Cross-section

The current yarn market in the world is facing a mixture of shock, surprise and panic. Since last 2 years, we have been witnessing what we have never witnessed in many decades. A global recession, followed by shocking disastrous floods in cotton growing countries, which became a surprise benefit for the spinning industry due to the panic of unavailability, lead to a major contributing factor for rise of cotton prices in last 1 and a half years. The rise of prices was also assisted by the heavy liquidity injection by powerful countries of world in the world financial market to roll the economic cycle again. This liquidity allowed many companies to get back on their feet and restructure their businesses in a way that can give them boost in sales.

The yarn market saw a bad trend when New York cotton index touched $1.50 level. This trend was bad due to the fact that at this level yarn market was moving along with rising cotton prices, but when the cotton elevated further to $2.13 level, we did not see much rise in prices and bottom line started to diminish for spinning industry. Then when the market started to fall again to its current level of $1.50, we witnessed a sharp fall in yarn prices, which was more than 40 %. This fall in prices destroyed the entire equilibrium between the cotton and yarn prices and hence started giving huge loss to the spinning industry.

Now since last 4 months we are witnessing an extremely slow textile market. In my opinion, it is due to following reasons:

·         Japan is one of the major financial markets, with Japan facing an earthquake, financing problems were ought to arise in the Asian region creating some liquidity crunch.

·         Pakistan in March came out with new forms of taxes on local sales; this tax was not clarified well by government, which created heavy inventory of yarns with the spinners. Once this inventory started to get off loaded, we saw a massive fall in prices.

·         China had bought excessive cotton from their requirement, with expectation of new years’ crop the Chinese started to sell their cotton in the world market and thus created an un-realistic supply available for the world, which also created a panic as China is one of the major Textile players of the world.

·         When the cotton supply was available then what we say as a simple market demand and supply philosophy, which triggered the reduction in synthetic fiber prices, and hence cotton exchanges started coming down, pushing the yarn prices at an unrealistic level. At the current yarn prices, I doubt that there is anyone out there making a buck for themselves.

·         Anyone who has cotton covered is just offloading it by producing yarns to avoid future loss if cotton comes further down. People who do not have cotton, have either reduced their productions or stopped it completely too. Recently, APTMA in Pakistan curtailed the spinning production significantly to push prices up which was also followed by South Indian Textile Association. All this has been happening to plan the saving of industry from the crisis being faced worldwide.

(Contd.)

However, with all above said, it would be total ignorance of mine if, I do not talk about the global warming here. We have been facing a massive change in worldwide climate since last few years. The floods and/or droughts that we are facing today should not be a surprise as it was predicted by many environmental brains but was of no heed to our ears. Last year’s floods destroyed nearly 20% of Pakistan’s cotton and almost same figure from China and India too. Cotton is a bulk crop that cannot be produced in off seasons. It requires a certain environment to germinate and grow for maximum advantage. But if that climate is unavailable or is tampered with, it can create a disaster for cotton and hence world textile markets too. This year all worldwide cotton gurus are predicting a good crop yield of cotton. However, we should all be aware that Mother Nature is still out there with all power to change the tides again. God Forbid it, but what if we face floods again in Pakistan and China? We are already witnessing a drought in U.S cotton. These all factors can be a major factor for cotton price change this year also.

Pakistan has always been a vital player in textile market of the world. As a nation also, textile is the backbone of Pakistan’s economy earning more than 60% of entire economy’s foreign exchange. This year Pakistan is expected to have a $ 6 billion rise in its exports owing to Textile price rise. Compared to the neighboring competitors like China, India and Bangladesh, Pakistan government has not yet given any subsidies on sales of yarns. Still, Pakistan has been competing tough with all of its competitors. In the future economic world, there is no bright hope for industries surviving on subsidies. Whenever, and I believe it will be soon, the other countries with draw their subsidies, Pakistan will be the only country left out to be able to gain maximum advantages due to its efficient and effective spinning industry. This will eventually be a huge chance for massive expansion in Pakistan of spinning industry and eventually will lead to economic growth of Pakistan. However, the most serious crisis being faced by the Pakistan’s textile industry is of energy requirements. This problem is restricting the industry from expansion. If this problem is resolved, Pakistan’s textile industry is fully prepared for huge textile investments.

The other problem that Pakistan faces is more or less same in all competing countries, which is-inconsistent policies for the industry. Any economic policy should be and must be sustainable for long term development goals. To some extent we are to blame the policy change also for the spinning crisis in Pakistan.

Uzbek cotton agreement is a solution to some extent to the growing cotton needs of Pakistan. However, I do not count it as a good solution. Pakistan has a growing spinning industry due to availability of its own cotton. The most ideal solution for growing cotton needs would be aggressive research and development for different cottons in Pakistan and also higher yield per acre of cotton. Uzbekistan does not have a well established logistic supply with Pakistan yet and without a good transportation system, it is tough to get cotton easily. Even if we do start importing bulk of cotton from Uzbekistan, we cannot be guaranteed of quality as we are within Pakistan. Uzbekistan is not a level playing partner in world cotton market yet.

 For Pakistan’s spinning future it is very vital to have higher cotton production with improved technology and research. A sustainable energy solution for long run for industries to live up to the growth targets and a consistent industrial policy is must. Without above mentioned points, industrial growth just seems like a dream that vanishes when we wake up.

Like once former CEO of Coca Cola Mr Bryan Dyson said “Value has a value only if its value is valued”- we need to start valuing what we have today in our industry, so that we don’t lose it in the future.

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