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February 26, 2020

Textile inputs cost goes crazy on coronavirus crisis

Business

February 26, 2020

KARACHI: Cost of imported textile inputs have escalated up to 100 percent amid shortage driven by slowdown in clearance of consignments at the ports, raising concerns for the industry that mainly relies on Chinese imports to contribute 60 percent to the country’s exports, businessmen said on Tuesday.

The businessmen said textile sector is facing shortage of raw materials as import consignments are stuck at Chinese ports and prices of locally available goods have shot up.

“Everyone is talking about increasing exports from the country, but the fact is that production cannot be undertaken in the absence of raw materials,” Zubair Motiwala, patron of Sindh Industrial Trading Estate (SITE) Association of Industry said.

Pakistan’s textile sector relies on imports to meet around 70 percent of its input needs. The country imported around $11 billion from China in the last fiscal year and the imports mostly comprise dyes and chemicals, which are basic raw materials for textile sector.

Industrialists appealed to the government to allow early clearance of imports consignments containing dyes and chemicals from China.

Motiwala said consignments are stuck at Chinese ports. Alternative suppliers, such as Korea, Taiwan and India, either stopped supplying or quoting 30 to 35 percent higher prices.

“It is becoming difficult to continue production activities due to shortage of raw materials, while prices in the local market have gone up by 50-100 percent,” he said. “Value-added textile sector requires ample quantity of dyes and chemicals. It is obvious that no one keeps the inventory for more than 1 or 2 months due to cash flow constraints as large amounts of exporters are stuck in sales tax refunds.”

Motiwala feared that exports, instead of increasing with the kind of advantage, might be the other way round.

"It is in common knowledge that orders are based on season to season at least for six months in advance and if this price hike continues and consignments are not timely cleared, production would suffer and industries would not be able to complete their orders on time and as per commitment," he said.

Ikhtiyar Baig, former senior vice president of Federation of Pakistan Chambers of Commerce and Industry said production halts and export delays from China provided an opportunity for Pakistani exporters to capture a fair share of U.S. and EU markets.

“However, this would only be possible if local manufacturers meet timelines and match rates offered by China,” Baig said.

Baig said the international buyers are not actually switching to Pakistan and other countries. “In fact, these are spillover orders due to production constraints in China,” he said. “These spillover orders can be turned into long-term trade relationship if the government facilitates the local exporters through reducing cost of doing business.”

Baig said gas and electricity tariffs should not be increased to support the industry and increase exports.

Energy cost has been a perennial concern of businessmen in Pakistan over years as they said tariffs in the country are highest compared with the competing economies.

Javed Bilwan, chairman of Pakistan Apparel Forum is not as much concerned about the input scarcity as energy prices and refund constraints.

“Additional orders are coming from US and other countries, as China is battling with the deadly corona virus,” Bilwani said. “But, there are many other issues which need to be addressed immediately.”

Bilwani said textile exports could double over the next five years if the government contains high energy pricing, increases gas connection and resolves tax refund issues.

Industrialists are concerned over price hike and delay in clearance of consignments. “Production would suffer and industries would not be able to complete their orders on time and as per commitment,” SITE Association said in a statement.

Motiwala urged the authorities to take urgent measures, as import consignments are anchored on Chinese ports.

“If the situation prevails, other countries would increase raw material prices further,” he said. “The government should immediately withdraw all the levies with immediate effect so that there should be minimum burden of cost escalation.”