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News Clips 31 August, 2013

[ Pakistan imports fabric in 26 weeks, BD in just 2 hours ]
[ EU delegation warns Pakistan over death penalty ]
[ Lawrencepur Woolen and Textile Mills suspends operations ]
[ Where's China's Growth? Textiles Industry Is Weaving Expansion ]
[ USA: Global Cotton Glut Spells Higher Profits for Apparel Industry ]

Pakistan imports fabric in 26 weeks, BD in just 2 hours   [ top ]

THE NATION, Salman Abduhu, August 31, 2013
LAHORE - The whole process of import as well as audit under DTRE system takes at least 26 weeks in Pakistan while in Bangladesh the entire procedure is completed in just in two hours. As a result, Bangladesh textile exports have surged to $26 billion without producing a single bale of cotton while Pakistan has never crossed the figure of $16 billion despite producing its own raw material.

“Procedure of Duty Tax Remission for Exports (DTRE) scheme has been designed in such a manner that just few companies out of thousands of value-added textile sector units in Pakistan were benefiting from the scheme to increase the country’s export volumes.”

Exporters are of the view that that apparel industry should be allowed to import fabric under the SRO 492 scheme, as the weaving industry of Pakistan is not efficient enough to fulfill the domestic apparel demand for fashion wear.

Stressing the need for consistency in export-related policies, they urged the government to simplify the complex nature of several segments of its policy, including DTRE and Sales Tax Refund system.

“If the new government removes all the bureaucratic red tape from the DTRE scheme, making it practical and simple, exports of value-added textile sector can be enhanced manifold as production cost will be minimized sharply.”

PRGMEA central chairman Sajid Saleem Minhas suggested the country’s garment industry mainly comprises of small and medium scale units, which are better off in producing high-end fashion products, as the order sizes remain small. However, due to the current import policies they fail to utilize their full potential.

“If the import of synthetic blends and cotton fabric, which are not being manufactured in Pakistan, is made duty-free the apparel and sportswear exports will be doubled immediately while export from Sailkot will surge manifold,” he added.

PRGMEA former chairman and chief coordinator Ijaz Khokhar said that small trims that carry no commercial value should also be made duty-free to avoid delays and problems with customs. Exports of the sector could also improve due to expected GSP Plus (Generalized System of Preferences) status from EU as lower import duties will make our products more competitive.

PRGMEA north zone chairman Farooq Meyer observed that the FBR will have to simplify DTRE scheme to facilitate the exporters, as the revenue generation only through taxes is not a permanent solution. He said that the whole value-added textile industry cannot be made hostage just owing to frauds of limited people, he added.

He said that apparel producers in Bangladesh and Sri Lanka, the two main competitors of Pakistan in the clothing sector, face almost no restriction or problems in importing fabric for making garments meant for export.

Ijaz Khokhar stated that a large number of export-oriented units were located in Punjab, and because that province was hit by the worst energy crisis, those units had not been in a position to avail import of duty-free raw material, with a view to avoid delay in export orders, as audit of DTRE takes up to 26 weeks.

EU delegation warns Pakistan over death penalty    [ top ]

THE NEWS, August 28, 2013
ISLAMABAD: An EU human rights delegation on Tuesday warned Pakistan that resuming executions would be seen as a “major setback” as the European parliament considers the country’s application for preferential trade status.

The government of Prime Minister Nawaz Sharif scrapped a five-year moratorium on the death penalty in June in a bid to crack down on criminals and Islamist militants in the violence-torn country.

Hangings were due to resume last week until a temporary stay was ordered following objections from the president and rights groups.European officials are visiting to assess the human rights situation as the bloc considers whether to grant Pakistan access to the so-called GSP-plus scheme of preferential trade tariffs.

The matter is expected to come before the European parliament in the coming weeks and delegation chief Ana Gomes, a Portuguese MEP, told reporters in Islamabad progress on human rights was crucial.

“We value as extremely positive the fact that Pakistan adopted the moratorium on the death penalty,” she said after talks with government officials, political parties and campaign groups.

“We hope that Pakistan will keep it. It would be viewed as a major setback if Pakistan were to lift the moratorium on the death penalty.”Countries wanting to gain GSP-plus status are required to ratify and implement a series of international conventions relating to labour rights and governance.

EU ambassador to Pakistan Lars-Gunnar Wigemark said that while the terms did not specifically include the death penalty, it contributed to the picture.“It would send an overall negative signal since the EU position on the abolition of the death penalty is very clear,” he said. “We don’t believe that it will deter any violent crime. There’s no evidence it deters any violent crime, including terrorism.”

Lawrencepur Woolen and Textile Mills suspends operations   [ top ]

THE NEWS, Javed Mirza, August 30, 2013
KARACHI: Dawood Lawrencepur Limited (DLL), the pioneers of textile composite units in Pakistan, has announced to suspend operations of Lawrencepur Woolen and Textile Mills with immediate effect.

DLL is one of the few woolen and worsted fabric spinning and weaving units in the region.

Lawrencepur woolen and worsted fabric, the most prestigious names in French and Italian fashion industry, will now operate under licence.

“Due to fall in demand and its adverse impact on the worsted fabric industry in Pakistan, the board of directors of the company has decided to suspend operations of Lawrencepur Woolen and Textile Mills with immediate effect,” Hafsa Shamsie, company secretary of DLL, said.

“However, the ‘Lawrencepur’ brand will continue to operate under the licence,” she added.

The decision is in line with the company’s strategic intent to focus on the renewable energy business, development of which is vital for the country’s economic growth.

The board has also approved a voluntary separation scheme for the management and non-management employees of Lawrencepur Woolen and Textile Mills.

Dawood Lawrencepur Limited was formed in 2004 by the amalgamation of Lawrencepur Woolen and Textile Mills Limited, Dawood Cotton Mills Limited, Burewala Textile Mills Limited and Dilon Limited.

For the last half a century, these companies have embodied tradition and quality.

In 2008, DLL acquired a wind power project, which is progressing satisfactorily and is a first step towards establishing the company’s presence in the alternative energy domain.

The profits from the textile business of Dawood Lawrencepur Limited stood at Rs2.775 million in the half-year ended June 30, while profits from the renewable energy was Rs3.145 million during the same period.

The textiles business yielded a profit of Rs35.145 million in the half-year ended June 30, 2012, which drastically fell to Rs2.775 million this year.

“As we explore the external economic environment, we view an opportunity to deliver profitability in a manner that can also benefit the people associated with us, as well as the planet we occupy. We feel that sustainable development through use of alternative energy resources, eg, wind, solar, etc, is the solution to building a brighter and cleaner future for our children, without putting any further pressure on the country’s already diminishing natural resources,” an official of the company said. “It is our strategic intent to play a leading role in the development of the renewable energy sector of the country, as we firmly believe that this is a critical yet overlooked area of the economic development, as well as the right legacy to leave for our future generations.”

Where's China's Growth? Textiles Industry Is Weaving Expansion   [ top ]

FORBES, Russell Flannery, August 28, 2013
The summer of 2013 has brought a feast of downbeat data for skeptics about China’s economic prospects. GDP and profit growth in the world’s number two economy have slowed. Orders for manufactured goods have been weak. Worries about bad credit amid surplus capacity have been rife. And China’s main stock market indexes have trawled four-year lows, a bad omen for the future. Such a slowdown has contributed to gathering gloom in other emerging economies in Asia and elsewhere, as easy financing that helped fuel their boom begins to tighten.

But in fact the China growth story remains strong in industries that have gotten relatively less government attention, where private entities have gained significant footholds. (Stock exchange indexes that disproportionately reflect doings at state-owned companies can be misleading.) The textile-and-apparel trade, long a Chinese mainstay but fragmented among many producers, is indicative. After initial gains from an end to quotas following China’s entry into the World Trade Organization in 2001, the industry slipped during the global financial crisis (when China also lost some wage-cost advantages), but now it has clawed its way back.

Production at Chinese textile companies “of scale” (meaning with sales in excess of $3.3 million) rose by 13.3% in the first six months of 2013 from a year earlier, to $488 billion, according to a national trade group. China’s exports of textiles and garments grew by 12% in the first half of the year to $127 billion, despite rising domestic wages and tepid global consumption. But demand and manufacturing at home is adding oomph: Overseas shipments that generated 37% of fabric and yarn sales in 2002 today account for only 16%.

Texhong Textile Group is a midsize exemplar of the trade. The Shanghai company’s net profit tripled in the first half from a year earlier to 447 million yuan, or $75 million, helping its Hong Kong-traded shares to gain fivefold in the past 12 months. And there’s no apparent credit problem here for now: The $1.2-billion-in-revenues company (it graduated from FORBES ASIA’s Best Under A Billion list) sold $200 million of U.S. dollar six-year debt at a modest 6.5% that will partly pay for new investments. Texhong is making inroads in a cotton textile industry where once-heavy state influence has receded but where Hong Kong families that built global businesses before the start of China’s economic reforms still have clout. According to a ranking of China’s biggest cotton textile companies in 2012, two of the top four, Luthai and Esquel, hail from the former British colony. Texhong ranked number ten.

In a country where a murky boss can be a red flag for all kinds of governance risks, Texhong’s 2012 annual report bears a full-page photo of cheerful 45-year-old Chairman Hong Tianzhu, smartly dressed in a sky-blue suit in front of a bright orange background. Why be shy? After the recent run-up in Texhong’s shares, Hong’s stake is worth a good $800 million. With Texhong’s $56 million acquisition this year of a smaller domestic maker, Hong sees more potential in China through consolidation. “The superior will survive, and the inferior will be squeezed out,” he says of the country’s 10,000 yarn and fabric makers. And of China’s textile industry as a whole, “The lack of big companies in the industry is an opportunity.” Hong estimates Texhong’s market share is only 1%.

Yet he has looked beyond China, too, and that is paying dividends. Texhong was a relatively early mainland investor in Vietnam for a plant there in 2006. One key benefit on top of cheaper wages: Texhong can buy cotton at international prices that are currently 45% below the going rate in China’s protected cotton market, giving Hong an advantage when he sells his yarn back home. Vietnam–and Texhong–also stand to benefit from the U.S.-supported Trans-Pacific Partnership trade agreement and from efforts by members of ASEAN countries to lower trade barriers among themselves.

Credit Suisse said in a June report that China’s policy of keeping cotton prices high to benefit local growers may not last. “We doubt the sustainability of the government policy in the long run as it significantly distorted the market supply/demand,” it warned.

But Texhong isn’t waiting for that. Vietnam, also with a history of state-run textile plants, currently accounts for 40% of the company’s production. “We are producing in a country that has a depreciating currency and selling in a country [China] that has an appreciating currency,” Hong says.

And Texhong, which employs 20,000 people globally, is looking beyond Vietnam. The company is also investing in Turkey and Uruguay in a bid to double its overall capacity by 2014. The U.S. is also in Hong’s sights.

The globalization of Texhong’s manufacturing “will not just allow [it] to enter previously untapped markets but also increase its response time to local markets as well as take advantage of preferential tariffs outside of Asia,” analyst Larry Cho of brokerage CIMB wrote in a recent report.

Texhong was born in 1997 when Hong, a small-scale trader, rented space in a struggling state-owned factory in Jiangsu Province and went into manufacturing. He subsequently acquired the assets of that and three other state companies facing liquidation. “Everyone thought taking on the workers was a liability,” Hong says. In fact, “There were a lot of experienced people. The problem was with the system.” Three of the four executive directors at Texhong today are former executives at SOEs.

Of many government backed-companies, Hong says, “It is hard to believe that they are still there.” (Among the largest in the industry today is Shandong Demian Group.) But the nascent tycoon is happy to swallow up private concerns as well, as in his most recent purchase. He says, “There shouldn’t be so many small companies. It’s not good for the integration of resources.” If he–and his rivals–have to continue paying rising wages in China, Hong says he will compete with international production while enjoying the rising purchasing power in his home market.

That could be a recipe not just for his industry’s next wave of growth but also for other Chinese producers.

USA: Global Cotton Glut Spells Higher Profits for Apparel Industry   [ top ]

BLOOMBERG, Luzi Ann Javier and Marvin Perez, August 29, 2013
NEW YORK: The fourth straight year of surplus cotton output and the biggest drop in Chinese imports since 2000 are creating record global inventories, signaling higher profits for the makers of Hanes underwear.

Stockpiles will jump 8.6 percent to 93.765 million bales in the 12 months ending in July, the U.S. Department of Agriculture said in an Aug. 12 report. There are enough inventories to make three pairs of jeans for every person in the world, and reserves doubled since reaching a 13-year low in 2010. Prices may fall 8.8 percent to 76.6 cents a pound by the end of 2013, according to the average of 16 analyst estimates compiled by Bloomberg.

China, which uses about a third of the world's cotton, will reduce imports by 46 percent, or 9.33 million bales, from last year as it focuses on supporting local producers. It is accumulating the biggest stockpiles ever after the government bought supply to aid farmers as economic growth slowed. The USDA's prediction for Chinese imports is about twice the drop it expects in global output, at a time when crops are improving across the U.S., India, Brazil and Australia.

"We expect weak Chinese demand and high global production to continue weighing on prices," said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors, which oversees about $1.3 trillion of assets. "The Chinese economy is slowing and export growth has been weaker than we expected for textile mills and other manufacturers."

Cotton rose 12 percent to 83.95 cents on ICE Futures U.S. in New York this year as improving yields reduced concern about drought that had driven prices as much as 25 percent higher. The Standard & Poor's GSCI Spot Index of 24 commodities advanced 3 percent since the end of December, and the MSCI All-Country World Index of equities added 7.4 percent. The Bloomberg Treasury Bond Index lost 3.3 percent.

Global production will drop 3.9 percent to 116.38 million bales in the 12 months that began Aug. 1 as demand expands 2.3 percent to 109.85 million bales, the USDA says. A bale weighs 480 pounds. China's stockpiles will surge 16 percent to 58.26 million bales, more than five times what it held in 2011 and 62 percent of estimated world inventory.

The glut emerged after prices almost doubled in 2010 and reached an all-time high of $2.197 in March 2011. Production expanded to a record 125.14 million bales the following year. Demand fell 11 percent since peaking in 2007 as the global recession curbed sales of clothing, bedding and textiles.

"The market cannot ignore the fact that huge stocks exist," said Jordan Lea, the chairman of Eastern Trading Co., an exporter in Greenville, S.C.. The inventories "will come to the market at some time, at some price," he said. "That is how they will threaten a rally."

Hanesbrands, the Winston Salem, N.C.-based maker of Hanes underwear and Playtex bras, said July 30 that its cotton costs dropped 49 percent in the second quarter. The company raised its full-year earnings-per-share forecast to $3.50 to $3.65, from $3.25 to $3.40.

Net income at Levi Strauss & Co., the San Francisco-based maker of Levi's jeans and Dockers apparel, more than tripled to $48 million in the second quarter, "mainly due to lower cotton costs," along with higher sales and more-profitable products, Chief Financial Officer Harmit Singh said on a July 9 conference call.

The predicted drop in prices may be curbed by China, where the government plans to buy from farmers for a third year. The program runs from September through March 2014 and pays 20,400 yuan ($3,332) a metric ton, the China Cotton Association said in April. That's about $1.51 a pound, or 80 percent more than New York futures. While the government may halt purchases in favor of direct subsidies to farmers, that won't occur until at least the middle of next year, Robert Yang, assistant president of the China National Textile & Apparel Council, said June 28.

China's imports, which accounted for 43 percent of global purchases last year, fell 21 percent in the first seven months to 2.74 million tons, from 3.46 million a year earlier, customs data show.

Hedge funds and other large speculators more than doubled their net-long position, or bets on higher prices, since early June and are the most bullish since the U.S. government began tracking the data in 2006. Long positions outnumbered shorts by 82,715 futures and options contracts as of Aug. 20, U.S. Commodity Futures Trading Commission data show. A contract represents 50,000 pounds. The outlook for the U.S. harvest has worsened. On Aug. 12, the government said that production will drop 25 percent to a four-year low of 13.05 million bales. In May, it forecast 14 million. Drought in Texas, the biggest grower, will reduce the state's crop by 18 percent to 4.12 million bales, the USDA says.

Heavy showers returned to parts of the Southeast in the week ended Aug. 25 and some of the wettest areas received more than 4 inches (10.2 centimeters), hampering fieldwork and hurting crops, according to the USDA. While the region is dry now, rain will return Sept. 2 to Sept. 6, according to Commodity Weather Group LLC. About 47 percent of the U.S. crop was in good or excellent condition by Aug. 25, from 46 percent a week earlier, the government says.

In India, the second-largest exporter, rainfall has boosted the outlook for the domestic crop, which the Cotton Association of India estimated Aug. 20 would reach 37.2 million bales, or 3.6 percent more than the USDA forecast this month. A bale in India weighs 170 kilograms.

While China is buying from farmers, it is unloading government-owned inventories that the International Cotton Advisory Committee estimated at 7.8 million tons as of July 31, or almost as much as the nation consumes in a year. The state sold 2 million tons from reserves this year through June 6, according to the China National Cotton Reserves Corp. That's reducing the need for mills to import from foreign suppliers.

Australia, the third-largest exporter, may reap as much as 5.5 million bales this year, more than the 4.5 million forecast by the USDA, Rabobank International said Aug. 8. Production also will rise in Pakistan and Brazil, the biggest producers behind China, India and the U.S., according to Cotlook Ltd., the publisher of a benchmark cotton index.

"The world has too much cotton and not enough demand," said John Flanagan, the president of Flanagan Trading in Fuquay-Varina, N.C. "Only lower prices can shut acres enough so that we can start seeing a multi-year reduction in inventories, which are huge."