APTMA rebuts arguments regarding cotton yarn availability.

1)    APTMA is the premier trade organization of Textile Sector, with members responsible for 60% by value of all direct exports. APTMA membership includes representation from all segments of textile value chain: spinning, weaving, knitwear, garments, home textile etc., as well as vertically integrated concerns. It is highly regrettable that a purely economic issue has been politicized by some of the smaller trade associations. The real economic issue which has caused such an uncalled outburst is the revaluation of rupee from 165 to 152 to a dollar which has squeezed the profitability of the entire value chain, including the yarn manufacturers, as explained below.

2)    Monthly yarn production is 200,000 tons with consumption of 1.3 million bales per month approximately 15.5 million bales per year of cotton paying international prices to 10 million cotton farmers and buying 100 percent of Pak cotton produce competing with international merchants at international prices with free export policy of cotton by the government at 0 percent duty to ensure international prices to cotton farmers. Out of which only 6 million bales were produced domestically, and balance had to be imported at international prices from USA Brazil and west Africa this year and 200,000 tons of Yarn production has been kept constant. The spinning industry consumes 100 percent of 30,000 tons of Synthetic fibers produced in the country, 200,000 yarn is produced from cotton and synthetic fibers monthly out of which only 100,000 tons of yarn is consumed by value added per month balance is surplus exported in form of 60,000 tons of Fabric and 40,000 tons of yarn every month. There is no question of shortage of yarn or fabric as is surplus. As per free market mechanism the buyers only need to pay international prices of the products to the value chain, but the so-called value-added sector of knitwear and woven garments are unwilling to pay international prices of yarn and fabric.

3)    It is completely baseless that yarn rates are above international rates. The export sector already has the facility to import yarn for re-export of products free of duty from anywhere in the world except India. Yarn prices of the world are depicted below.

4)    Export Refinance is available to value-added sector at a mere 3% and should have been spent on purchasing yarn and cloth, the sector would not be reaching out to government for additional support. Approx. Rs. 1 trillion has been acquired by value-added sector in the name of Export Refinance for the procurement of yarn that would have given them enough stock for at least 6 months. But there are no stock of yarn or fabric currently available with the companies suggesting that the funds were utilized elsewhere. Export Refinance availed by value-added sector in must be audited to see whether the credit is utilized for the purpose it was meant to be. Cheaper yarn as is claimed could have been imported but was not done so. It would be interesting to find out on what items this concessional finance has been spent – there will be nasty surprises.

5)    Spinners imported cotton when cotton prices were high (90 cents/lb) and exchange rate was 165. Currently, cotton is at 80 cents and exchange rate is 152. The combined effect is that raw material (cotton) that has been imported is 22% more expensive but the yarn manufacturers had to adjust pricing in line with the lower cotton price and exchange rate, taking a hit of approx. 10% on the realized value of yarn. The rupee appreciated against the dollar by 8% and thereby squeezed the textile sector by reducing the amount of rupees they would have been received. In a business that is volume based with small margins, large scale unforeseen appreciation has wiped out profitability. Failure to hedge against exchange rate fluctuation is a business decision and neither the government nor anyone else can be held responsible.

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