Pakistan Textile outlooks

Pakistan Textile: Local yarn margins to remain strong in FY22

· Local yarn margins currently stand at PkR261.5/kg or +61% vs PkR214.4/kg or +55% FYTD due to robust demand of downstream players. Yarn export prices were trading at a discount of 26.1% to local yarn prices which clocked in at PkR661/kg vs export prices of PkR523/kg in 1QFY22).

· On the global front, decline in Vietnamese exports will help India and Pakistan to fulfill export order originating from robust apparel demand form US and EU where Pakistan’s 4MFY22 textile exports have reached an all-time high of US$6.04bn (+27%YoY) as per APTMA and PBS.

· Pakistan is currently engaged in talks with IMF for the revival of US$6.0bn support package with energy tariffs being the major sticky point. The local gas production (meeting 25%-30% of demand) has to be supplemented with expensive imports where the gas tariff currently in place requires government to give a major subsidy as the cost isn’t being passed on to the end customer.

· With global textile dynamics continuing to remain favorable amid brewing trade war between US and China and as yarn margins remain downward sticky, the local textile sector finds itself in a sweet spot. In this backdrop, we like textile players with a higher concentration of spinning segment sales in their topline together with lower dependency of gas in their energy mix such as NCL.

Courtesy – AKD Research

Posted in Article & Features.

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