LAHORE, May 9: Pakistan’s spinning industry is faced with a serious crisis as the domestic buyers of its yarn are backing out of their deals, demanding a price revision in view of slumping global cotton market.

“Every one is backing out and refusing to take the delivery of the yarn at the prices at which the deals were originally closed,” a yarn producer told Dawn on Monday.

The foreign buyers have also slowed down yarn imports from Pakistan demanding substantial reduction in prices in line with the massive drop in the New York futures for the next cotton harvest.

The fall in demand for yarn in the importing countries has led its exports to fall to 16,000 tons in April from a monthly average of 44,000 tons for the first nine months of the current year to March.

The cotton prices have plunged by more than 30 per cent since April.

“The decrease in exports and domestic sales of yarn have led to accumulation of huge stocks since early last month, forcing many mills to stop production or curtail output to avoid losses,” the spinner said.

He claimed that the losses being accrued by the spinners were substantial, eroding their profits.

Some yarn manufacturers claim more than 50 mills had completely closed down, while others were operating far below their installed capacity because of the inventory pile-up.

Another spinner said the domestic downstream textile industry was refusing to honour the deals at the previously agreed prices on the pretext of increased contamination in the local yarn.

“But the quality has never been the real issue. The issue has always been the yarn prices, which are determined by the cotton rates,” he insisted.

In addition to cancelling purchase deals made at higher prices, the domestic yarn users are also defaulting on their payments to the spinners.

In some cases, the yarn makers say, the buyers had refused to pay the agreed price for the yarn they had lifted from the spinning mills and consumed. “They want to re-negotiate the price of the yarn they had already bought at an agreed price and consumed,” the spinner said.

In answer to a question, he said there was no legal recourse available to the spinners against the ‘defaulters. “It’s a buyers’ market. We cannot blacklist the defaulters because we have to sell our product to them.

“If you do not sell your yarn to one buyer he will go to another supplier and get the commodity at his own price,” he said.

Another spinner opposed the idea of introducing cotton futures in the country. “The involvement of speculators in the cotton market will distort it because Pakistan is a cotton scarce country and has to import the commodity to meet its industry’s requirements,” he added.