KARACHI, April 15: Prices of Polyester Staple Fibre (PSF) in the local market have plunged 21 per cent in two weeks, from Rs80 per kg (excluding GST) at the start of April, to Rs63 per kg, currently.
“There have been three price reductions during the past fortnight, which is quite surprising to everyone as local PSF prices are usually revised once in two weeks or every month,” says Khalid Iqbal Siddiqui, analyst at the InvestCap Securities.
The PSF oversupply and the ‘cartel’ rift — similar to that in the cement sector — is being blamed for the free fall in local prices of PSF. The industry had undergone capacity expansion of around 183,000 tons per annum during 2002, which sparked a price war among the PSF producers, the earliest signs of which were evident in February.
According to market sources, international prices of raw material used for production of PSF had decreased marginally below the $600 per ton mark (both PTA & MEG), as a result of sudden drop in crude oil prices, following the end of Iraqi conflict.
“International PSF prices have declined to around $880-890 per ton (C&F Karachi) from the level of $940-950 per ton witnessed just last week,” says Mr Siddiqui. He believes that in order to avert the possibility of import of PSF by the textile industry, a major producer has resorted to sharp cut in prices.
To be able to keep a hold on local PSF prices and yet maintain profitability, manufacturers would need to practice prudent raw material inventory management.
Earlier on, prices of PTA and MEG had appreciated by about $170 per ton and $80 per ton, respectively, which was why local PSF prices had increased from around Rs70 per kg in December 2002 to Rs80 per kg by end of March.
But things for local producers could get worse, before they get better. Two years ahead at the end of the WTO regime in 2005, local producers would have to compete with the foreign producers in the Pakistan’s PSF market.
Humaira Zaheer, synthetic sector analyst at the IP Securities, says that a lot depends upon the cost structure of local PSF producers. “Presently, the local PSF manufacturers do not enjoy the competence of integrated upstream industries, coupled with the lower financial, utility, infrastructure and freight costs (which the foreign producers enjoy),” says Ms Zaheer, adding that it could create serious constraints on the local PSF producers, both big and small.
