Exporters have halted yarn sales as the depreciating dollar slashed their profit margins, resulting in higher availability of the raw material at cheaper rates in the domestic market, sources from the value-added textile sector said on Tuesday.
Meanwhile, industry sources were also hopeful that the recent initiative by Pakistan for normalisation of relations with India could pave the way for cheaper cotton yarn imports from across the border.
The value-added textile sector has been demanding the government to allow import of yarn from India since prices are cheaper while the locally produced yarn is costlier. Spinners who produce yarn were of the view that the raw material was costlier due to costly cotton imports.
With the falling greenback rates, imported cotton would also be much cheaper for the industry in Pakistan.
Pakistan is importing cotton from many countries including the United States which increased the cost of production.
Cotton production in the country fell by 34.4 per cent against the target while consumption continues to increase.
“The recent decline in yarn prices is neither significant nor there is any surety that prices would remain stable as it is mainly because of a sudden drop in US dollar prices,” said Aamir Aziz, an exporter of finished textile products.
Yarn exporters who sold their products at the rate of Rs160-161 now face a decline in their profits. The dollar is around Rs157 in the inter-bank market, with daily fluctuations in the exchange rate. The dollar lost 7.5pc in value since August against the Pak rupee.
Cheaper US dollar has led to a reduction in the prices of imported cotton yarn and now it would be in competition with the domestically produced yarn with lower prices. Local yarns merchants have reduced prices depending upon grading of yarn.
Previously, the spinners strongly opposed yarn imports from India, saying that there should not be any trade with the country unless disputed issues including imbalances in trade are resolved. Imports from India remain higher than exports from Pakistan.
However, with Pakistan taking the initiative to normalise relations with India, traders have high hopes for the import of cotton and cotton yarn.
In the first week of this month, Chairman of the Pakistan Apparel Forum Muhammad Jawed Bilwani said major export orders from different countries were coming to Pakistan for various value-added textile products but the short supply of cotton yarn in the local market hindered their production activities making them unable to meet their export orders.
He demanded immediate permission for duty-free import of cotton-yarn from India as well as a ban on cotton yarn export.
“Media reports suggest that there is a move for normalisation of ties with India. For many cotton and yarn users, there could be a chance to import both the cotton and cotton yarn,” said Nasim Usman, Chairman of the Karachi Cotton Brokers Forum.
He said the cotton is still being imported mainly from United States. “I believe the importers have booked cotton up to $4 billion,” he said.
The cotton season starts from September in Pakistan which means the country’s cotton import till the third quarter of this year would cost $4bn which is substantially higher and is likely to neutralise the government’s effort to increase the exports.
He said as per the report of the Pakistan Cotton Ginners Association, local cotton stock — about 1.5m bales — is available for only two or three days.