Year 2011: Gas crisis kept textile sector on its toll

Faizan Saleem

The year 2011 has proved to be the mixed year for the textile industry of Pakistan as it faced the ups and downs in the same year ranging from sharp fall in global commodity prices to severe energy crisis.

The cotton prices touched its highest level in March 2011 resulting in windfall gains for the textile sector during first half of the year but the favorable situation didn’t last for the longer time period.

The Pakistan cotton association is expecting to reach 12.6 million bales, which is 8 percent above from the previous year. However, the textile sector of Pakistan is facing severe problem of gas shortages along with lower cotton prices posing doubts on the expected target.

The textile sector has been the worst hit of the prevailing gas crisis in the country during the year as their plants are solely dependent upon the supply of gas. Since the start of the year, the country has faced acute gas shortages resulting in massive production losses or reliance on expensive alternate fuel such as diesel. Hence, the operational costs of the manufacturers remained higher leaving them behind in the export market.

The profitability of the sector also witnessed major dent due to lower cotton prices and improved global cotton production.

The profitability of the spinning units will be affected the most; Spinners will not be able to make windfall gains which they had made last year on account of continuously rising prices and supply concerns, said by Bilal Qamar-analyst at JS Global Capital Limited.

He further stated that the standalone weaving units and other value added units will benefit due to lower yarn prices and composite units like Nishat Mills Limited (NML) and Nishat Chunian Limited (NCL) could manage the current situation as they are elastic in switching focus in-between their segments.

The future of the textile industry is reliant on the smooth supply of gas which doesn’t seem to be resolved in near future. Moreover, the recent hike proposed by the ministry of petroleum is likely to create further problem for the sector. The estimated target is expected to be achieved by the end of financial year, but the lower cotton prices could put pressure on the overall exports of the country.

Several textile mills have closed in recent past and some have shifted their production facilities to Bangladesh.

Resolution of energy crisis which requires souring alternate energy resources, resolution of circular debt and improving security environment for facilitating exploratory operations and inviting investment in the sector are vital.

http://www.halaltamweel.com/2011/12/29/News/Year-2011--Gas-crisis-kept-textile-sector-on-its-toll/2943/Story.aspx