Costly raw material leads to expensive value added products

KARACHI: Each time one goes shopping in various malls and bazaars anywhere in the country, banners attracting customers promising 50 to 70 per cent sale offers almost always gets one’s attention.

This is not Eid or New Year.

This is an impact of the economic slowdown that the local retail market feels with shrinking purchasing power, rising costs of production and power crisis .

With a rise in cotton prices in local and international markets, rates of Value Added Textile products have doubled, compared to last year.

Cotton prices have sharply risen to twice their value over the last 10 months to reach Rs6,900 per maund. Consequently, prices of cotton yarn, a basic raw material for many readymade textile products, have gone up, resulting in a steep rise in prices of cotton-based textile products.

Naeemul Haq, the CEO of Jaguar Textile Industry, Faisalabad, said that the effect of power crisis and rise in raw material prices can be reflected in retail sales.

Here in Faisalabad, he said, retail prices of a shift of  cotton shalwar kameez has doubled in just one year. A suit, which was priced at Rs300 last year, is now available for Rs750, he said. “Factories are being closed owing to power and raw material shortages,” he added.

Naeem, who is also vice chairman of the Pakistan Hosiery Manufacturers Association, pointed out that it was impossible to control rising prices and thereby, the rise in inflation, if basic raw material continued to be so expensive.

“Obviously, offering products at discounted prices are part and parcel of the retail business.” The discounts have also increased in line with readymade garment prices in Faisalabad, he added.

With the rise in production cost and less sales, manufacturers have no other option but to offer a discount on their old stocks but this is tricky as cost of merchandise is increasing.

Overall, the manufacturing sector is facing a crisis-like situation, with woes added over the increase in utility bills and the power crisis.

Value added textile industries have been closing down with the current yarn crisis. They say that they bear the high production cost patiently and resort to sales option also, but there is a limit to everything.

Abdul Majid Chaudhry, who runs a factory in Karachi, said that the power crisis has increased the cost of production of readymade garments.

Chaudhry, whose factory produces embroidered T-shirts, said that garment prices are bound to increase because of rupee’s weakness against US dollar and the rise in production cost.

Muhammad Arsalan, an office-goer, said brands like  Cambridge and Bonanza in Karachi have put their products on sale offering discounts of up to 40 per cent over the last eight to 10 months.

“Now, with continuous sale offers, the price tags of many upmarket brands have come down to 50 per cent of their original prices,” he added.

Adil Mehmood, former chairman of the All Pakistan Textile Manufacturers Association (Aptma) said over phone from Lahore that the weakening rupee is one of many factors affecting prices of value-added products.

Mehmood, whose own factory has been shut down owning to financial problems, said: “It is fair to expect a 20 to 30 per cent increase in prices of end-products.”

Published in the Express Tribune, June 1st, 2010.