By: Alfalah Securities Private Limited
As per the recently released numbers by PBS, textile exports for 4MFY16 clocked in at USD4.27bn, down 6.9% YoY. Drop in exports was witnessed across the board with cloth, yarn, knitwear, bed wear exports declining by 9%, 21%, 2% and 8% YoY, respectively, while only garments exports managed to increase by a humble 4% YoY. Similarly, exports in Oct’15 declined by 10.7% YoY. Despite a volumetric decline of only 3% YoY in yarn exports during 4MFY16, average yarn spreads have dipped by 15% YoY owing to continuous decline in realized yarn prices.
The GoP has imposed 10% import duty on cotton yarn as well as grey and processed fabrics. This move is likely to increase the input cost for value-added segment further eroding their competiveness in the international arena. However, reduction in ERF & LTFF by 1pp each and allowing spinning/ ginning sectors to qualify for LTFF is likely to support exports.
Cotlook A index, has remained pretty stable in Nov’15 so far and currently stands at US¢69/lb, up by 4.4% YoY. As per USDA, global ending inventories have been reduced by 0.9mn bales to 106.1mn bales, still sufficient to meet global demand for a year without requiring any further cotton production. On the local front, concerns regarding shortage of current cotton crop have uplifted the prices by 12% to PKR5,300/maund, since the start October.