Pakistani textile firms set to gain from increasing cotton prices

A farmer harvests cotton in his field at Rangpurda village in the western state of Gujarat, India, October 20, 2015. REUTERS/Amit Dave/File Photo


According to Insight Research, textile firms in Pakistan are likely to benefit from the global increase in cotton prices, particularly firms that produce value added products. The benefits will materialise in the shape of higher margins on existing cotton and textile inventory, and a revival in textile operations after the emergence of a better global demand scenario.

These subsequent benefits are indicated by increase in the number of shares of textile firms traded at the Pakistan Stock Exchange (PSX) and the percentage increase in the firms’ share prices.

Gul Ahmed recorded an increase of 0.61 per cent in its share price; Kohinoor Textiles witnessed an increase of 1.63 per cent, Nishat (Chun.) saw a surge of 0.65 per cent while Nishat Mills Ltd’s share price increased by 2.20 per cent on Wednesday.

According to a prediction by the United States Department of Agriculture (USDA) in its recent report, some of the countries will have lower cotton inventory levels in 2016/17. This prediction has led to a 13 per cent increase in global cotton prices.

The reasons for this shortfall are mainly an increase of 1.5 million bales of cotton demand by China and lower production in Pakistan and India. Even though the United States had a 1 million bale increase in its production for the year, the prices are still expected to rise as a recent demand for the government’s reserves sales indicates that mills are consuming more cotton than previously estimated. Production levels in Greece and Uzbekistan have also reduced. World 2016/17 ending stocks are now projected at 91.3 million bales, a reduction of 9 million from the starting level.