The strong demand for Pakistan’s textiles in the global market – July exports increased.

Pakistan’s total exports in July 2021 clocked in at US$2.3bn, up a sharp and impressive 17% yoy while down c.15% mom, from the record-setting level in June. Textile exports surged to the second highest level of US$1.5bn, up c.16% yoy (down c.10% mom). The handsome growth numbers are a testament to the strong demand for Pakistan’s textiles in the global market, while some regional competitors continue to grapple with Covid outbreaks and lockdowns.

Key Highlights in Textile exports

The mom decline in exports is likely due to reduced working days on account of Eid holidays, in our view, despite which exports grew to the second highest level in July. We expect exports to continue its present growth momentum in the coming months, ahead of Winter season holidays (orders expected to rollout from August) and easing of restrictions in the West amid high vaccination rates.

Cumulative exports of value-added segments were up an average c.10% yoy, while maintaining the US$1.0bn level for the second consecutive month. In terms of volumes, however, those of Knitwear surged c.40% yoy, while Readymade garments and Bedwear remained flattish. It is worth highlighting that US$ unit prices rose c.5% mom in July.

Overall Textile imports in July surged to the highest level in the last five years of c.US$0.40bn, where a sharp c.40% mom decline in cotton imports was more than offset by a sharp rise in synthetic fibers. This implies exporters may be focusing more on value addition for future exports (already 65-70% of total textile exports in the past two months), in our view.

We believe that the demand for Pakistan’s textiles globally is likely to remain strong due to continued rerouting of orders out of China and other regional Asian countries. The capacity enhancements by various textile exporters is an indication of strong order flows, while exports’ competitiveness is also supported by recent c.5% PKR depreciation, continued rationalization of imports tariffs on raw materials and power subsidies from the government. A renewed focus on value addition may also allow for organic growth in exports in the coming months, apparent from the record imports of synthetic fibers. The arrival of the new Textile Policy will further ensure sustained competitiveness of the sector, in our view, and will be another impetus for Textile stocks.

Courtesy – Intermarket Securities Limited.

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