Pakistan Textiles: Textile exports face backlash of dull global economic outlook – By Foundation Research

Pakistan Textiles: As per the latest numbers by Pakistan Bureau of Statistics, textile exports continued to show a declining trend in January 2016 (down 10% YoY). In this regard, 7MFY16 textile exports clocked in at US$7.3bn, significant decline of 9% YoY. Summing up the year so far, weak demand from Europe, relative strengthening of Rs versus regional currencies dampened textile exports, whereas reduced energy and finance costs coupled with grant of GSP plus status have failed to make exports competitive. We also emphasize lack of value addition has affected Pakistan’s exports by increasing its sensitivity to global cotton prices.

We advise caution while approaching this sector as patchy global economic outlook in general should weaken export demand. On the relief side, currency tailwinds may positively affect the sector along with alleviation of energy crisis. Within the sector, prefer plays that are vertically integrated units with focus on value addition products.

Lower cotton demand exerting pressure on non value added segment: Amongst the major sectors, Yarn exports (11% weightage) directly linked to cotton consumption dipped by 32% YoY in 7MFY16. As per the latest report by USDA for February 2016, world consumption forecast has deteriorated significantly from 116mn bales to 109mn bales primarily owing to lower cotton use in China. Indigenously, lower exportable supply (lower cotton arrivals) has also taken a toll on country’s yarn exports, we believe. Subsequently, Pakistan’s yarn export experienced both a negative price (down ~17% YoY) as well as volumetric variance (down ~18% YoY). Yarn exports during January 2016, stood at US$88.4mn, down 48%/18% YoY/MoM.

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By: Foundation Securities Private Limited