LAHORE, Oct 30: Yarn inventories at the spinning mills are piling up as its take-up by domestic processors, including woven and knitwear garments producers, has sharply slowed down over the last one month or so owing to their declining exports.
The spinners manufacturing blended yarn, that is, polyester fibre mixed with cotton or viscose are said to be in a more serious crisis because of the slowdown in sales compared to those making cotton yarn.
“The piling up of yarn stocks at the mills is a matter of serious concern for the spinners because it is causing cash flow problems as well as erosion of inventory value in case prices of the commodity fall,” All Pakistan Textile Mills Association (Aptma) spokesman Akber Sheikh told Dawn on Monday. “The spinning mills normally carry finished goods inventory of 5–7 days. With the slowdown the inventory levels are running at about 12–15 days,” he claimed.
Asked as to why the situation with regard to blended yarn was said to be graver than that of cotton yarn, he said: “The problem with blended yarns is that our mills are not competitive internationally because of high cost of polyester fibre for local mills.
“Unable to export substantial quantities, we are dependent on local sales to offload our stocks. Local sales don’t qualify us as exporters. Also local sales are mostly on credit and we always run the risk of bad debts,” he said.
“Commercial banks too are also not sympathetic towards us because they lose export business while dealing with the mills selling their product in the domestic market,” he added.
The crisis of piling stocks at the spinning mills is said to be getting deeper day by day. “The problem with the spinning mills is that unlike processors we cannot shut down production even if our product is not selling.”
“For instance, during the Eid holidays we had to pay extra wages to the labour as overtime without making any deliveries because of holidays. It just added to our inventory levels,” laments Sheikh.
He said the weavers too had reduced their purchases when they saw the increasing stocks and low sales as, in the existing situation, they were well assured of deliveries when required due to higher levels of yarn inventories available with the spinners.
Besides piling up of yarn inventories, the spinners are also facing a dip in the prices of the commodity both in the domestic and the international markets. “In the last one week, the cotton (20 counts) and blended yarn prices have dipped by around five per cent, which represents a substantial decrease in the already small margins of the spinners,” says Sheikh.
“The government should keep every sector of the textile industry feasible. For us apart from reducing other input costs, the government should ensure availability of polyester fibre at internationally competitive prices. We cannot pay import duty of 6.5 per cent, not get a drawback and still export our products,” he says.
The government must enhance efficiency of domestic transactions and formalise them as promised in the Trade Policy 2006-07 and simplify documentation under the scheme that treats domestic yarn sales as indirect exports, he added.
“The way things are going we will see closures and defaults until a balance in supply and demand are achieved. This, however, is not a desirable solution as it will mean shrinking exports and recession in the industry. Once we lose our markets, as we are losing them now, we will not be able to recapture them after a few months,” he warned.
