Friday, August 26, 2011

Egypt's yarn price hike causes disruption

By Paul Cochrane for

While Egypt's garment sector appears to have weathered the political upheaval that swept through the country earlier this year, the key textile sector has been hit hard by the quadrupling in price of locally-produced yarn.

The Egyptian economy is struggling along in the wake of the revolution that ousted President Hosni Mubarak earlier this year, even though protests continue and workers demand more rights and better pay.

But while the garment sector appears to have weathered the crisis, expecting to export more than US$2bn in clothing this year, the spinning sector has been hit hard by the quadrupling in price of locally-produced yarn over the past six months, rising from EGP10 (US$1.68) to EGP42 (US$7.06) per kilogram.

Some 51% of all textile factories in the Nile delta city of Al Mahalla el-Kobra stopped operating in June due to the spike, according to The Egyptian Gazette, and an estimated 650,000 workers are in danger of losing their jobs.

The country's largest yarn producer, the state-linked Holding Company for Spinning and Weaving (HCSW) has not been helping.

Worried that it would be undercut by cheaper imports, which are approximately US$1 cheaper per kilo than locally-produced yarn, it requested the ministry of trade and industry in April to impose anti-dumping duties on yarn imports.

However, mindful of stepping into a potential row between elements of the country's important textile industry, the interim government (parliamentary elections are slated for September) has not however implemented any bans on imports or exports of raw cotton. Egypt itself produces some 130,000 tonnes of cotton a year.

"There has not been a significant move by the government to stop cheap cotton imports," said Gilbert Ammar, general manager of GilClaude and the International Textile Industry in Alexandria, which sells to hypermarkets and catalogue companies in Europe.

Instead, there have been efforts to ease the problems. Pending hoped-for government support, the HCSW and other state-linked cotton and spinning companies - which employ 60,000 people and accounts for one-fifth of Egypt's public sector workforce - have reduced the cost of yarn from EGP31.5 a kilo (US$5.29) to EGP27.5 (US$4.62) for the domestic market.

The government has also extended EGP14bn (US$2.3bn) in debt settlements to spinning and weaving companies, while banks have extended their grace period on loans.

There could be more price disruption to come. On top of the yarn price increases, the minimum wage is to be increased to EGP700 (US$117.8)-a-month - although this will only affect the public sector, with private companies generally unfazed by the planned increase.

"The government is talking about a minimum salary per month while the workers are wanting EGP1,200 [US$201). I don't think the government can pay more than EGP700 as the public sector does not have the funds to do so," said Ammar.

He added that a primary problem for the spinning sector is not just cheap cotton imports, but that the machinery used by most state-linked spinning companies are antiquated and unable to process high quality cotton.

"It will be a bad year for the spinning companies. But they have to improve their quality and connection with the manufacturing process to stay alive and be more competitive, for they are operating far from the reality of the market," said Ammar.

Meanwhile, garment producers are directly sourcing their own cotton to avoid breakdowns in the production chain, and are banking on an increase in orders this year from Europe to take advantage of the short delivery time. A vessel takes one week to go from Alexandria to La Havre in France, for example.

"I think exports will increase over US$2bn this year as more big buyers are placing orders," said Ammar.

Photo from just-style -

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