ISLAMABAD: Pakistani Exports during Sep’23 declined 11% YoY (↓6% MoM) to US$1.4bn versus US$1.5bn in Sep’22. This cumulated to a decline of 10% YoY during 1QFY24 (US$4.1bn).
Textile exports have been on a declining trend for the last 1 year on account of weak demand from US and European markets given monetary tightening amid multi decade high inflation.
Going forward, we are modestly positive that exports would improve given (1) expected recovery in US as inflationary pressures soften and (2) steep currency depreciation (21% YoY) witnessed over the last year. However, Govt’s decision to withdraw concessional electricity tariff for export sector and raise energy prices would negatively impact sector’s profitability.
Impact
Monthly exports tumble for all segments barring yarn: During Sep’23, exports were down 11/6% YoY/MoM. Looking at the breakdown, we note that exports of readymade garments declined 10/12% YoY/MoM, knitwear slid 21/14% YoY/MoM) and bedwear decreased 13/8% YoY/MoM. Cotton cloth exports were ↓/↑ 14/9% YoY/MoM while cotton yarn jumped 50/8% YoY/MoM.
Exports decline in 1QFY24 despite volumetric growth: During 1QFY24, exports of readymade garments decreased 11% YoY despite 8% YoY improvement in volumes as prices shed 35% YoY. Similar phenomenon has played out in knitwear and bedwear segments which have undergone declines of 16% YoY and 10% YoY respectively, despite volumetric growth of 34% YoY and 1% YoY. Share of readymade garments and bedwear was flat YoY at 20% and 17% respectively. Whereas, knitwear declined by 2ppts YoY to 27%.
Cotton cloth exports decreased 18% YoY as quantity declined 7% YoY (prices decreased 21% YoY). Cotton yarn exports inclined 33% YoY as quantity was up 57% YoY (prices decreased 29% YoY). Share of cotton cloth declined 1ppt YoY to 12% while cotton yarn increased 2ppts YoY to 8%.
Jump in cotton arrivals despite pest attack in South Punjab: Pakistan Cotton Ginners Association (PCGA) reported that till mid-Oct’23, 6.0mn bales of cotton (↑80% YoY) had been produced across the country with Punjab contributing 2.5mn bales (↑41% YoY) and Sindh adding 3.5mn bales (↑128% YoY). Total production during FY24 is estimated at ~8.8-9mn bales.
Heavy whitefly attack on standing cotton crop has been reported in South Punjab amid dry and hot conditions. Gov’t has taken timely action of spraying pesticides with the help of drones, helicopters and power sprayers in the affected areas of DG Khan (65,000 acres). We do not expect the impact of the pest attack to be significant.
Outlook
Going forward, we are modestly positive that exports would improve given (1) expected recovery in US as inflationary pressures soften and (2) steep currency depreciation (21% YoY) witnessed over the last year. However, Govt’s decision to withdraw concessional electricity tariff for export sector and raise energy prices would negatively impact sector’s profitability. In the long run, the sector’s fate depends on (1) better cotton-seed quality, (2) greater contribution of value-added segment, (3) removal of capacity constraints and (4) investment in latest technology.
