Pakistan textile spinning sector facing difficult times
by Dr. Noor Ahmed Memon

Spinning is the first process in the cotton value chain that adds value to cotton by converting into a new product i.e. conversion from ginned cotton into cotton yarn. Since spinning is in the beginning of value chain, all the later value added processes of weaving, knitting, processing, garments and made-ups are dependent upon this process. At the time of independence, where many other industries were non-existent in the country, spinning sector did exist. This long history has resulted in making spinning as one of the most developed sub-sectors of Pakistan's textile sector.  At present there are 461 textile mills in the country with 11.27 million spindles and 188 thousand rotors. Out of this, nearly 10.06 million spindles and 114 thousand rotors are in operation.

The yarn production was formerly concentrated in the 20s. But many spinners have introduced combers, and the combed yarn fetches a premium of 20% to 25% in the world market. More significantly the spinners are now increasing the production of yarn count of 30s and above. The spinning mills are concentrating on the production of coarse-count 20s. The production of yarn significantly increased from 1.73 billion Kg in 2000-01 to 2.85 billion kg in 2007-2008, thus showing an average increase of 8% per annum. The share of blended yarn increased from 21% in 2004-05 to 24% in 2007-2008. Production of yarn is given in Table-1.

The textile industry, which invested around $7 billion (half of this amount was invested in the spinning sector and the remainder in the value added sector) between 2001-08 to modernise and expand its capacity in the hope of substantially increasing its share in the world markets after the removal of quota restrictions from January 2005.

The spinning sector has obviously received the highest attention and resources followed by weaving and then various sub-sectors of value-added segments. Besides revival of spindles, about 2.82 million spindles have also been added to the capacity during the last eight years.

The increase in the credit cost, which consequently increased the financial charges of the mills, has now forced the industry to slow down further investment. On the other hand Pakistan’s textile products have become less competitive in the international market owing to tough competition from India, China and Bangladesh.

Due to high mark-up rate in the country, the import of textile spinning machines decreased from 5,983 numbers worth Rs9.38 billion in 2004-05 to 3,098 numbers worth Rs3.93 billion in 2007-08, thus showing decline of 58% in terms of value. Import of textile spinning machines is given in Table-2 and country-wise import of textile spinning machines is given in Table-3.

Pakistan's textile industry enjoys several advantages over those of many other countries as far as the production of quality fabrics and yarn is concerned and is a world leader in the export of cotton yarn, including coarse, medium and fine varieties. Due to slump in the world market, export of yarn decreased from 672 million kg worth US$1.38 billion in 2005-2006 to 562 million kg worth US$1.29 million in 2007-2008, thus showing decline of 6% in terms of value. Export of cotton yarn is given in Table-4.

Average unit price realization of Pakistani cotton yarn in the international markets is very low compared to that of its competitors. There are two major reasons for this. First is the cotton quality, cotton provided by ginning is contaminated with non-lint components. This results in production of contaminated yarn that sells for a lower price. Second reason for low unit value realization is the product mix of Pakistani cotton yarn. More than 70% of the total yarn production is that of coarse and medium count yarns. In yarn exports, this percentage is about 99%. Coarse and medium counts fetch a lower price compared to fine and super fine counts that ultimately manifests in low unit value realization. Moreover, the share of other high value added yarns like dyed yarns is also very small in total exports.

About 70% of yarn exports belong to the lower (less than 30) counts. It will not be out of place to mention that developed countries have concentrated on open-end (O/E) rotors. This is very significant, because our spinning sector must either move to higher counts or compete with O/E coarse yarn. Both ways, new market has to be developed with better technical strategies. Pakistan's leading buyers are China, Bangladesh Hong Kong, South Korea, Turkey, and Portugal. Country-wise export of yarn is given in Table-5.

In today's textile world, the incremental demand created each year due to population growth is being met through manmade fibers. Pakistani spinning industry is moving slowly in this direction from the last five years due to high price of raw materials. Pakistanis heavily dependent on local cotton and needs to increase the share of manmade fiber yarn in its total production.

The increase in cost of production is making spinning sector uncompetitive and unviable. In case of slump in textile market, sale of yarn becomes very difficult and unsold stock accumulate to such an extent that production is reduced and mills occur losses. However, production of finished goods can absorb increase in production cost to a greater extent in view of higher return. It appears quite difficult for Pakistan's textile sector to live more on production of yarn and grey cloth than on production of finished products and garments as the return ratio between yarn and garments is around 1:20.

Therefore, it becomes imperative that Pakistan textile sector must go for maximum value-addition for creating greater employment opportunities and strengthening its economy failing which textile giants of the region such as China, India, Sri Lanka, Bangladesh and Vietnam would make Pakistan as the raw material producing and warehousing country.

There is no denying the fact that the Pakistani textile industry is becoming uncompetitive vis-à-vis India and Bangladesh. Pakistani textile products had become less competitive mainly because of mainly high cost of products due to an increase in oil and gas prices and a surge in interest rates.

The global uptake of yarn had declined considerably and the domestic consumption of yarn was already on the decline regularly during the past 15 months. Most of the mills were losing cash on a daily basis and the loss in sales was enormous. All mills on average suffer depreciation lose of Rs5 million monthly and the financial charges also came to more or less Rs5 million. Production cost had gone high, however there was no demand for yarn even at below-product cost rates. On the other hand Pakistan’s textile products have become less competitive in the international market owing to tough competition from India, China and Bangladesh.