Yarn exports may rise as China reduces production

LAHORE: Yarn exports from Pakistan will continue to increase until the value added sector rises to challenge other Asian cloth exporters as China is moving away from yarn production because of high cost.

Textile experts point out that surge in yarn exports this year is not a temporary phenomenon but it is just the start and more yarn will be shipped in coming years.

They say China, the largest yarn producer and consumer, will opt out of yarn production due to increase in cost. Historically, countries looked for cheaper source of cotton yarn once their per capita income crossed $2,000 because labour cost hampers production of low value added products at competitive rates.

Per capita income of China has already crossed $3,000. China with over 100 million spindles (a spindle is a machine that spins yarn which is later woven for various textile uses) produces more than double the yarn than that produced by India, the second largest producer of yarn with around 45,000 spindles.

Installed spindles in Pakistan are 12 million, of which 10.5 million are working. China this year stopped production on 12 million spindles which is equivalent to the total installed capacity of Pakistan.

Another factor reducing yarn production in China is the decision of the government to give preference to food production over cotton. So it is converting cotton-sown areas and has become the largest importer of cotton in the world which has further increased the cost of yarn.

Pakistan’s clothing sector this year was forced to pay international price for cotton yarn after a surge in its exports. As a result, the government slapped quota on yarn exports last month. However, its prices increased further because spinners preferred reducing production instead of selling yarn at what they claim below cost.

Talking to The News, All Pakistan Textile Mills Association Chairman Ejaz Gohar said tinkering with the free market economy would be disastrous for the entire textile sector of the country. With cotton rates above Rs5,000 for 37.5 kg and bank mark-up in the range of 16-18 per cent, he said, it was not feasible for the spinners to sell yarn at last year’s prices when cotton was 60 per cent cheaper.

He said investment in the textile industry almost dried up in the past three years. “This is an appropriate time to increase spinning capacity to meet expected high demand of Pakistani yarn in the global market.”

Two top clothing exporters each with exports of over $200 million tend to agree that the value added sector will have to face the reality of high yarn prices.

Pakistan Hosiery Manufacturers Association former chairman Adil Butt said instead of bickering over high yarn prices the clothing exporters should press foreign buyers to offer better prices. He said no reasonable buyer would refuse to adjust prices in accordance with the increase in yarn rates which was a global phenomenon.

He said top quality yarn was available in the domestic market, though prices were high, adding his units were operating 24/7 and buyers had agreed to increase prices.

MI Khurram, another clothing exporter, lamented the clothing sector missed an opportunity to make higher exports by forcing the government to impose restrictions on yarn exports. He said that resulted in further increase in yarn prices as many spinners curtailed production instead of selling yarn at a loss.

He said he got 5-10 per cent increase in prices of various clothing categories from foreign buyers after increase in yarn rates.

Pakistan Hosiery Manufacturers Association former chairman Shahzad Azam Khan, however, said the increase in yarn prices was engineered by the spinners. He said the Trade Development Authority of Pakistan fudged data to impose 30 per cent higher ceiling on yarn exports compared to what was agreed between the cloth exporters and finance and textile ministers. “Now good quality yarn is not available even at very high rates,” he said.