All Pakistan Textile Mills Association (APTMA) has issued a strong rebuttal to allegations by garment manufacturers that yarn prices in Pakistan are more than the international prices. In a detailed press release on Tuesday, APTMA has also claimed that export sector in Pakistan has the facility to import duty free yarn, from anywhere in the world (except India) for re-export of final products.
Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) had recently urged the Prime Minister to conduct a forensic audit of yarn producers to check the increase in prices of yarn causing financial stress to value-added textile exporters and increasing their cost of manufacturing.
In an open letter to the PM, it was pointed out that the textile manufacturers have increased the rates of yarn by more than 40 percent in a very short span, creating artificial shortage on the excuse of lower production of cotton in the country despite declining prices of cotton in the international market, hitting the apparel sector exports badly.
APTMA rejects allegations of yarn prices: Explains situation
However, the All Pakistan Textile Mills Association (APTMA) released a detailed Press release, on Tuesday, rejecting the allegations of garment manufacturers and explaining why this confusion may exist in many minds.
First, it argued that monthly yarn production in Pakistan is around 200,000 tons. Pakistan consumes around 1.3 million cotton bales per month – almost half of which is imported from different parts of the world including USA, Brazil and West Africa. Spinning industry of the country producing yarn is paying international prices to almost 10 million cotton farmers and is buying 100 percent of Pakistani cotton produce competing with international merchants at international prices. Given that government has kept a free export policy of cotton at 0 percent duty to ensure international prices to cotton farmers.
According to APTMA, the spinning industry also consumes 100 percent of 30,000 tons of synthetic fibers produced in the country. It further explained that around 200,000 tons of yarn is produced from cotton and synthetic fibers monthly out of which only 100,000 tons of yarn is being consumed by domestic value-added industry per month for different products including the beds sheets and garments. Remaining balance of domestic yarn is surplus and is exported in the form of 60,000 tons turned into fabric and 40,000 tons of yarn every month. However this 40,000 tons of yarn falls into categories that are not being used in Pakistan by the value added industry.
No Shortage of yarn or fabric in Pakistan: APTMA
There is no question of shortage of yarn or fabric as it is in surplus. As per the free market mechanism, the buyers only need to pay international prices of the products to the value chain, but the so-called value-added sector of knitwear and woven garments are crying as they do not want to pay international prices of yarn and fabric. Import of yarn without duty and taxes, from anywhere is free for export purposes of final product.
Other sources in the industry point out that garment manufacturers are not prepared to pay regional wages of $ 150 minimum (Rs 22,000/month) to their labor in Pakistan adding to the misery of the labour class which is adding to the feeling of shortages.
Sources point out that cotton and yarn prices from India are temporarily lower as Indian producers currently do not have access to the Pakistani market which does not require shipment by sea. Also, as Indian exports were not as vibrant during the pandemic, they have a temporary stockpile. Commerce and ECC of the cabinet had almost submitted to the demands of garment manufacturers for import of cotton from India – however this would have compromised Pakistan’s principled stance on Kashmir PM in full cabinet meeting ruled it out.
The second reason why Indian prices appear to be temporarily cheaper in comparative terms is the substantial increase in ocean freight (C&F costs) which before the pandemic were $1,300 and have now increased to $3,600 per 40 feet container from Shanghai to Karachi and four times the normal freight from the US or Brazil.
It is thus completely baseless that yarn rates are above international rates. The export sector already has the facility to import yarn for re-export of products free of duty from anywhere in the world except India. Yarn prices of the world are depicted below.
No stocks of yarn or fabric despite Export Refinance for Value Added Sector?
APTMA press release points out that “Export Refinance” is available to the value-added sector at a mere 3% and should have been spent on purchasing yarn and cloth, the sector would not be reaching out to the government for additional support. Approximately, Rs. 1 trillion has been acquired by the value-added sector in the name of Export Refinance for the procurement of yarn that would have given them enough stock for at least 6 months.
But there is no stock of yarn or fabric currently available with the companies suggesting that the funds were utilized elsewhere. Export Refinance availed by the value-added sector must be audited to see whether the credit is utilized for the purpose it was meant to be. Cheaper yarn as is claimed could have been imported but was not done so.
It would be interesting to find out on what items this concessional finance has been spent – there will be nasty surprises, APTMA argues.
Effects of Pakistani Rupee appreciation on exporters: Real Reason?
Spinners imported cotton when cotton prices were high (90 cents/lb) and the exchange rate was Rs. 165 to a US $. Currently, cotton is at 80 cents and the exchange rate is Rs. 152 to a US $. The combined effect is that raw material (cotton) that was imported, at previous prices and exchange rates, is 22% more expensive but the yarn manufacturers had to adjust pricing in line with the current lower cotton prices and exchange rate, taking a hit of approx. 10% on the realised value of yarn.
The rupee appreciated against the dollar by 8% and thereby squeezed the textile sector by reducing the number of rupees they would have been received. In a business that is volume-based with small margins, large-scale unforeseen appreciation has wiped out profitability. Failure to hedge against exchange rate fluctuation is a business decision and neither the government nor anyone else can be held responsible – APTMA argues in its press release.
The graph below gives NY Cotton prices for the ongoing calendar year 2021.
Exchange Rate fluctuation (Dollar vs Rupee) for 2021 is given in the graph below
Though APTMA collectively is not demanding that the industrial sector, including the value-added sector, must increase minimum wages to at least Rs. 22,000 per month in line with the inflation in the country and regional wages. However GVS has found out that many major textile manufactures across Pakistan have already raised the minimum wages to ease the living burdens on their labor. This is the only solution to ease life for the working class and to help them counter the issue of food price inflation, industrialists argue.