Textile mills cut cotton buying;await promised incentive-package

KARACHI: Textile mills have bought almost 36 percent less cotton from the local market upto December 15 of the current fiscal year as they await a promised incentive-package by the government to materialize, industry officials said on Monday.

 Pakistan Cotton Ginners Association and industry officials said textile mills have bought 6.81 million bales from the local market. They expect buying to pick up after the announcement of a final production number of current crop, due in the first week of February 2016.

The association said the stock of unsold cotton bales (of 155 kilogram each) stood at 1.86 million bales on December 15, 2015 which was 16 percent lower than 2.22 million bales on December 15, 2014.

Cotton production this season has dropped by almost 32 percent to 9.03 million bales so far from 13.23 million bales produced in the same period last year. The low cotton output and high cost of business have reportedly close down at least 600 ginning firms in the country.

"Some 100 cotton-yarn manufacturing firms (out of total 450) have been shut down due to increased cost of doing business and the government's poor response in addressing the industry problems," said Asif Inam, vice chairman, All Pakistan Textile Mills Association (APTMA). “The situation has convinced the mill-owners to cut cotton buying this year.”

APTMA has been requesting the government to withdraw three percent duty on import of cotton, remove surcharge of Rs3.60/unit of electricity, and do away with Gas Infrastructure Development Cess at Rs200/mmbtu. Besides, it should release sales tax refunds in pending for years.

“If the awaited package is not announced, the industry total demand for cotton would fall to mere 13 million bales this year," he said.

He said the cloth and fabric manufacturers were importing cotton-yarn in huge quantity every month to keep their mills operating. "They imported 3,700 ton cotton-yarn last month and are expected to import almost the same quantity in months ahead," Inam added.

 The millers are importing cotton-yearn under Duty and Tax Remission for Exports scheme, since the government imposed 10 percent regulatory duty a few months back.

“If the government had not imposed the duty, the imports of cotton-yarn would have been at least 10,000 tons every month," Inam said.

Pakistan Cotton Ginners Association (PCGA) reported mere 580 ginning factories were operating in the country on December 15, 2015 against 1,082 factories operating on December 15, 2014. In total, there are over 1,100 ginning factories in the country.

"Low availability of phutti has caused closure of over 500 ginning factories this year," said Shahzad Ali Khan, chairman, PCGA.

He said cotton-yarn manufacturers were not increasing cotton buying and were waiting for the final cotton production numbers, which would be available by February 2-3, 2016. "The yarn manufacturers are of the view that the cotton production is much higher than the reported one and also think slow buying would convince ginners to reduce price of cotton," he said.