Cotton prices at record levels in Pakistan

· Despite a steady supply of commodity, the price of cotton in local market reached unprecedented high of PkR20,000/mound. The spike in local price come at a time when the international price of of the commodity have reached to USc128/pound.

· Our channel checks suggest that textile and spinning mills are still doing gradual buying in the local market while ginners are also vigilant and expect further increase in the prices. These tightened positions taken by spinners and ginners meant that traded volumes are low.

· Due to an increase in the prices by almost double compared with the last year, liquidity demands have increased in the market and several textile mills may likely have exhausted their bank limits, facing problems in procurement .

· The liquidity crunch may force textile companies to take on more expensive loans for working capital requirements as EFF can be taken against 50% of exports receipts only. Conversely, the textile companies may be forced to remit back their exports receipts parked abroad quicker, in order to have further access to cheap credit.

· The textile industry is going through unprecedented times where the prices of commodity has raised many challenges. However, owing to plethora of incentives provided by the government, the industry has seen its profitability grow significantly. We have a buy stance on the sector where NML is our top pick with a TP of PkR128/sh, offering a total return of 68% as of last close.

Courtesy – AKD Research

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