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November 10, 2017

Textile sector’s spinning dilemma

Business

November 10, 2017

LAHORE: Things are getting worse for the basic textile sector having lost sizeable domestic market due to closure of thousands of power looms and slow yarn exports. To top it all, now smog is damaging the quality of the cotton crop.

In the current scenario, even the efficient mills are finding it difficult to operate at optimum capacity. Quality cotton is simply not available in the market; those having some stocks are charging commercially unviable rates.

Cotton imports from India have been effectively stopped due to non-tariff barriers like quarantine and testing of quality of the commodity at places far away from the Wagah border. Going is getting tough with every passing day, a spinner said.

The spinning industry has become unviable not only due to high power and energy cost but also due to its inability to operate at full capacity. Spinning mills, according to experts are designed the world over to operate 24/7 at full installed capacity.

Operating a spinning mill substantially below its capacity increases its cost, as the high fixed charges are then divided on the operating capacity. Experts point out that besides the closure of over a hundred mills; the remaining mills are finding it hard to operate at full capacity. Even after reducing production, most of the surviving mills are sitting on huge unsold stocks.

The production cost has also increased substantially due to high power cost and higher cotton rates. If the situation persists, many more mills will go out of production. The mills that are surviving are mostly composite mills that produce yarn and convert it into fabric. The firms that are thriving are those that process their fabric and convert it into apparel. It is interesting to note that most of these composite units have also upgraded their technology.

These mills are operating at optimum capacity and their costs are much lower than the mills that are in trouble. The mills that are producing yarn from inefficient technology have unfortunately lost their main local consumer; the small power loom owner.

Hundreds of thousands of these looms are closed after the export of fabric declined. These looms also lost the domestic market to the high value brands that have emerged in the domestic market in recent years. Unfortunately, this cyclic process has played havoc with both the spinners and the power loom sector.

If we look at big names in the basic textile industry they are on recovery path after a brief period of recession. These big textile houses soon realised that they will not only have to upgrade their technology but also find a solid footing in the domestic market.

Two years back the share of domestically produced textiles was 20 percent in the domestic market, while 80 percent was exported. Now 35 percent of the textiles produced in the country are consumed locally and only 65 percent is exported.

In value terms, the sales of textiles sold in the domestic market has reached Rs800 billion (nearly $8 billion) while the exports are down to $12 billion only.

It is worth noting that the basic textile exports have declined across the board affecting both the inefficient and efficient mills and the composite mills. The composite mills have made up the export loss by increasing value-added apparel exports.

The efficient mills belonging to big houses created a loyal domestic market. They opened hundreds of brand outlets across the country and have raised their rates substantially much more than what they used to get when they disposed their fabric through dealers.

Another interesting point is that the sales in terms of value have increased substantially, though the sales in terms of quantity have declined. The earnings however are higher than before.

These brands have gone into stitching to cater to both domestic and foreign markets. They are expecting to make a mark in value-added exports instead of yarn and fabric export. The future of inefficient mills is bleak. Their main consumers were power looms that no more exist in large numbers. In fact Faisalabad that used to be the major producer of power loom fabric has turned into a junkyard of these looms, which are being sold at or below the rate of steel to the junk dealers.

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