Faisalabad’s yarn market is Asia’s largest yarn trading venue. It is located in Montgomery Bazar in the heart of the city, near the Clock Tower. The market occupies a pivotal position in Pakistan’s economy. More than 75 per cent of the textile industry in the country is engaged in yarn manufacturing. Yarn is the blood of the textile industry in the world. Its marketing has vital importance at national and international levels.
Yarn marketing in Pakistan operates in dual ways i.e. directly via spinning mills and indirectly through agents. Some yarn producers sell the product in domestic and foreign markets directly. Mostly, its marketing is accomplished by agents inside the country and by spinning mills themselves outside the country.
Cotton is the main cash crop that contributes significantly to the economy particularly to the local yarn market. Last year, we produced 11.9 million bales of cotton but by 2015 the production target is estimated to be 20 million bales utlising advanced technology and an increased cultivation area.
Yarn markets in the country
There are 325 yarn shops in Faisalabad’s yarn market out of which only 216 shops are registered by the Pakistan Yarn Merchants Association (Punjab and NWFP Zone). It is the largest market of the country. It covers 74.43 per cent of yarn sales within the country. In this market, approximately 27,542 bags are sold every single day. Pakistan yarn market consists of agents (50 per cent), dealers (25 per cent), brokers (15 per cent), middlemen (6.5 per cent) and traders (2 per cent).
In most circumstances, yarn prices are settled through the consideration of two important factors. Firstly, yarn prices in international markets and secondly, the day-to-day selling policies of spinners to withhold sales for a day or two, in order to encourage higher prices on a supply-demand basis play a major role. Therefore, the price of yarn in the market fluctuates from week to week by four to five per cent. The quality of yarn with a higher demand in local and export markets fetches higher prices.
According to available statistics, breakdown of total consumption of yarn is divided between various components of the textile industry. Towel units purchase 14.21 per cent, power looms and weaving mills purchase 34.76 per cent, middleman acquire 10.22 per cent, hosiery units buy 24.02 per cent and 16.79 per cent of yarn is purchased by velvet, carpet, tent, canvas, blanket, sewing thread and embroidery thread manufacturing units. 81.11 per cent of the consumers always purchase yarn from the same shops.
Karachi is the second largest yarn trading market. However, small yarn markets can be found at Lahore, Kasur, Gujranwala, Multan, Kamunki, Jalalpur Jattan, Chunian and Jhang. The function of these markets is to provide raw material for consumers, i.e. power looms and weaving mills, hosiery units, tent, canvas, blanket, sewing thread, velvet, carpet, embroidery thread and other manufacturing units who purchase yarn according to their requirements for their individual units time to time. These markets are an alternative source for commercial exporters who export small quantities of yarn as compared to direct exports by spinning mills.
Bone of contention
There are a number of components in the textile loop such as spinning, weaving, dying and printing. However, a conflict of interest between two major components, spinning and textile manufacturing which is known as the value-added industry has divided the industry into two opposing groups who blame each other for their respective miseries.
The background of this contention is that value-added textile exports constitute 82 per cent of total textile exports. The cloth (finished goods) export sector is a major foreign exchange earner of more than $2 billion per year. But due to an unrestrained export of yarn, cloth exports have declined considerably. The industry exported cotton yarn at $1.58 per pound and cotton at $1.14 per pound where as we can get $6.00 from the export of a textile cloth made by this much of the raw material.
Pakistan Hosiery Manufacturers and Exporters Association (PHMEA) has accused local traders of exporting cotton and cotton yarn at less than international prices, which it says hurts local industry due to shortage of raw material. PHMEA sources say that Pakistan’s textile exports are 57 per cent of its total exports, but authorities are not willing to regulate export of cotton and cotton yarn.
In a recent statement issued by Pakistan Textile Exporters Association (PTEA) Chairman Khurram Mukhtar and Vice Chairman Sohail Pasha, it was said that unabated export of cotton yarn has had a negative impact on value-added exports as cloth exports have declined by 10.69 per cent in ten-month period from July to April during the current fiscal year.
However those favouring yarn exports have an altogether different rather an opposite version of the story. All Pakistan Textile Mills Association (APTMA) Punjab Zone Chairman Gohar Ejaz warned that obligation of regulatory duty or restraining exports of cotton yarn may lead to closure of spinning mills producing and supplying yarn to the local industry. “Some 250 out of a total 400 spinning mills in the country are producing and supplying 170,000 tonnes of yarn per month to the local subsidiary industry,” he said. A majority of these mills are already short of cotton and have started closing down operations, he informed, adding that the managements of these spinning mills are planning to terminate operations for at least 90 days till the new cotton crop arrives in the market, incurring a loss of $3 billion. If the government imposes regulatory duty or attempts to restrain cotton yarn exports, thousands of employees in spinning mills will lose their jobs. APTMA and yarn exporters say that price of raw materials is determined by market forces and higher yarn prices in export markets is enabling cotton growers to attain a better price of their stock.
Value-Added Textile Forum, a joint body of at least 14 value-added textile associations, has staged countrywide protests, rallies and strikes in the past demanding the imposition of a ban on export of cotton yarn and raw cotton. The value-added textile sector of Faisalabad recently observed a strike to put forward their plight. Delegations comprising senior business leaders have directly talked to the president and the prime minister on the issue, requesting them to take direct action.
The government’s perspective
According to the Federal Bureau of Statistics, 41,777 tonnes of cotton yarn was exported in March this year against a quota of 35,000 tonnes. However, it was less than the exports from last year, which were 46,512 tonnes. Textile sector representatives claimed that their factories were shut because of the yarn shortage.
As yarn exporters and the value-added textile sector, in a conflict of interest, are pitched against each other in a bitter trade-war going on for more than a year, the government has no clear-cut policy on yarn exports as of yet and it has demonstrated a divided stance on the pressing issue. President Asif Ali Zardari assured the APTMA delegation during a meeting that no restrictions would be imposed on cotton and cotton yarn exports this year. On the other hand, the National Assembly’s Standing Committee on Textile Chairman Akram Ansari (PML-N) has asked authorities to allow the export of cotton and cotton yarn only in the case of a surplus in the local sector. It is pertinent to keep in mind that India has put non-tariff barriers on exports of cotton and cotton yarn to protect its value-added textile sector. India’s textile exports were only 12 per cent of its total exports whereas the same figure for Pakistan is 57 per cent.
Now the million dollar question before the government is how to adopt an objective, forward-looking and proactive strategy to address grievances of both sides. A simple solution would be to address the grievances of the cotton growers in the country as that will ensure a bumper crop. Once that is achieved, there will be enough yarn in the local market to meet demands for both purposes.
This is the only way to get the best of both aspects. The projected target of 20 million bales in coming years is pretty realistic if the agriculture sector is given an average degree of protection. Moreover, the farmers and ginners need to be educated on quality improvement, grading, packing, labelling and storage operations of cotton. Improved quality of raw cotton will not only reduce the cost of production and waste production but will also enable spinners to produce cotton yarn of higher counts to fetch more foreign exchange with the improved quality.
In the meanwhile, a transparent, stable and long term cotton export policy should be formulated and implemented in the country that will cap all grey areas and loop holes existing in the textile sector.
Cotton & cotton yarn sector
• Cotton earns $1.14/pound & cotton yarn earns $1.58/pound in exports
• Regulatory duty or export restraints on cotton yarn may lead to closure of spinning mills
• Thousands of employees in the sector will lose their jobs if exports restricted
• 170,000 tonnes of yarn per month supplied to local subsidiary industry
Value-added sector
• Export of a textile cloth earns $6.00
• Value-added exports constitute 82% of total textile exports
• Exporting cotton and cotton yarn at less than international prices create shortage of raw material for local industry
• Unabated cotton yarn exports cause value-added exports to decline by 10.69 per cent