- Over 300 units closed due to cut in gas supply, says APTMA chief
Abdul Rahim Nasir, Chairman, All Pakistan Textile Mills Association (APTMA) claims that over 300 textile units have been closed due to the cut in gas supply. He urged the Government of Pakistan (GoP) to immediately restore gas supply to the textile industry. Explaining gravity of the situation, he said Pakistan has already lost almost US$1 billion of textiles and clothing exports.
Accompanied by APTMA, North Zone Chief, Hamid Zaman and Senior Vice-Chairman Kamran Arshad at a press conference, he said the 26 percent upsurge in the export of textiles during fiscal year 2021-22 was made possible only due to the supply of energy at a regionally competitive tariff.
He stated that the textile industry performed admirably, increasing textile exports from US$12.5 billion in 2020 to nearly US$20 billion in 2022, a 60 percent increase.
He claimed that the exponential growth in the textile sector has promoted investment of over US$5 billion and the establishment of 100 new textile units, which, after becoming operational, would result in fetching additional exports of US$6.0 billion per annum.
Rahim Nasir pointed out that gas supply to the industry was suspended for a week, almost halting production in the whole value-added industry and causing colossal losses to the economy.
He added that the large-scale closure of mills has resulted in massive layoffs and unemployment, spreading economic chaos.
He believes it is inexplicable that the exporting sector, which has pledged to increase textile exports to US$25 billion in 2022-23, is being denied energy and gas. He said that an uninterrupted supply of gas is a must for the industry to maintain momentum in exports.
Zaman said that the textile sector has repeatedly delivered on its commitment to enhance exports and proven that they are a viable and long-term solution provider for the economic stability of the country.
He warned that more than 50% of output would be lost this month, with a very high risk of permanent order loss and buyer diversion from Pakistan to its competitors.
He stated that the textile industry is currently producing goods for the upcoming Christmas, and any delay in the delivery schedule risks losing export markets for an indefinite period with little chance of recovery.
“If this momentum is lost due to energy supply and cost constraints, Pakistan will be forced to seek an additional US$6 billion in loans from abroad, which under the circumstances may not even be possible,” he said, stressing the immediate restoration of gas supply to the export-oriented industry.
Highlighting the importance of the textile sector in the mainstay of the country’s economy, Arshad said that textiles have a 61% share in the country’s exports and 40% of manufacturing sector employment. The fragile economy of the country cannot sustain the consequences of the closure of mills in the wake of non-supply of gas.
Sector performance and outlook
As per Pakistan Bureau of Statistics (PBS), Pakistan textile sector posted record exports of US$19.3 billion during FY22, up 26% as compared to the last year. This excellent performance can be attributed to: 1) increased volumetric growth by 16%YoY in value added segment, 2) steep rise in global demand and 3) record cotton prices. In PKR terms, the exports amounted to PKR3.4 trillion, up by 40%YoY.
Among the value-added segments, knitwear emerged the top performer by witnessing 34%YoY growth to US$5.1 billion during FY22 due to the sharp rise in global demand especially in USA and European countries.
Other value-added segments such as Ready-made Garments (US$3.9 billion), Bedwear (US$3.3 billion) and Towel (US$1.1 billion) posting growth of 29%YoY, 19%YoY, and 19%YoY respectively.
Interestingly, Pakistan’s textile exports in relation to textile imports remained flat. While Textile exports were reported at US$19.3 billion, textile imports were recorded at US$4.8 billion (including imports of raw cotton, fibre, worn clothing etc).
As compared to May 2022, textile exports recorded 4%MoM growth in June 2022 led by 4%MoM increase in volumetric growth mainly because of Eid holidays in May 2022. During the month, major increase was witnessed in Value-added division, especially in Readymade garment segment (up 15%MoM). This was followed by Knitwear (up 11%MoM) where 28% increase in volumetric growth played a key role.
Interestingly in June 2022, all items in basic textiles witnessed a negative MoM as well as YoY change to US$301 million (down 13%MoM and 9%YoY).
In comparison with June 2021, textile exports were up 3%YoY, but up 35%YoY in PKR terms) in Jun-22.
Expected increase in energy tariffs, slowdown in global economies and decline in cotton prices are key challenges the textile sector could face going ahead. Though, weakness in PKR would provide some cushion.
We expect the textile industry to remain in turmoil as gas crisis has started to surface again. However, power blackouts in addition to the current macroeconomic conditions remain a challenge for the industry.
Textile sector has begun to losing the orders .The sector had lost around US$1 billion in orders as the incumbent Government rolled back RECT from July 01, 2022. Furthermore, suspension of gas supply to the sector has led to closure of 300 textile units.
In addition, the ECC has approved gas tariff hike which will adversely impact the textile sector as many textile units depend on Gas for power generation.
Moreover, the SBP has also increased rates on Export Finance Scheme (EFS) and LTFF by 250 bps and 300 bps, respectively as part of monetary tightening. This will also hit the sector as these rates are now linked to the policy rate.
Going forward, the Government is eyeing US$25 billion exports from the sector but domestic and global challenges are dampening the outlook.