CAIRO - Yarn prices have shot through the roof in the local market over the past few months, jeopardising a labour-intensive industry that employs around 1 million, analysts say. Yarn has more than quadrupled from LE10 (about $1.7) to LE42 per kilo. Around 51 per cent of textile factories in the Delta city of Al-Mahalla el-Kobra have stopped operating and the remainder are gradually laying off their labour force. In Al-Mahalla, Egypt's textile capital, 650,000 workers are facing unemployment, at a time when the country needs serious hard work to get the wheel of the economy rolling again after the January 25 revolution. "The Government will pump funds into State-owned companies facing problems. There is no intention to privatise them," Mohssen el-Gilani, the Chairman of the Holding Company for Weaving, Textiles, Cotton and Garments, told Sabah el-Kheir weekly magazine. "The losses of State-owned companies have fallen to LE530 million in fiscal year [FY] 2010/2011 from LE2.3 billion a year earlier," he added. Egypt's fiscal year begins on July 1. El-Gilani said there were 32 State-owned companies, which are subsidiaries of the Holding Company for Weaving, Textiles, Cotton and Garments. "The Holding Company seeks a fair price for yarn among a raft of measures taken by the Government to solve the problem," he said. Egyptian cotton exports hit 2.2 million qintars in the FY 2010/2011, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS). Local manufacturers need 4 million qintars annually to keep their production lines running, according to official data. One qintar equals 150kg of cotton or 45kg of ginned cotton. China, India and Switzerland top Egypt's cotton importers, according to CAPMAS. It is argued that local textile producers are caught between the hammer of rising yarn prices and the anvil of Chinese-made products that have flooded store shelves nationwide. The country's decades-old textile industry is going through "a very critical circumstance", as Mohamed el-Morshedi, the Chairman of the Textiles Chamber at the Egyptian Federation of Industries, puts it. "Egypt's output of ginned cotton and yarn doesn't cover one-third of local textile demand. The yarn and textile sectors are feeling the pinch, threatening the country's number one labour-intensive industry," el-Morshedi explains. Last September, a similar yarn crisis rocked the country's textile industry and a number of producers exited the market as yarn jumped to record highs locally and globally. "Due to spiralling yarn prices and imminent losses for both producers and exporters, many factories will have no alternative but to shut down their businesses," el-Morshedi warns. According to him, the present increase in cotton prices is the highest since the American Civil War (1861-1865), when the price of cotton soared from 10 US cents a pound in 1860 to $1.90 a pound in 1863-1864. World cotton prices actually fell in April as the Cotlook A Index slowed to $1.73 per pound from a record of $2.44 a month earlier, according to the International Cotton Advisory Committee (ICAC), but prices "remain very high by historical standards", ICAC said in its May report on the outlook for global yarn prices. But the London-based organisation forecasts that demand for yarn will fall on "high prices of cotton and competition from chemical fibres". "Factories are hit by a serious crisis due to lack of materials. There is no yarn and cotton in the market. Even private-sector factories in Shubra el-Kheima and Al-Mahalla have shut down," Saeed el-Gohari, the head of the General Union of Textiles' Workers, says, calling on Prime Minister Essam Sharaf to take fast and urgent steps to save the industry. "Clothes smuggling into Egypt is the most dangerous threat to the textile industry. Putting an end to this is the first step to get the sector back on track," el-Gohari said. ICAC expects demand for yarn to slow this year on "high cotton prices [and] problems of credit access". "Global cotton use is expected to reach 25.1 million tonnes in 2011, almost unchanged from 2010. A slowing of spinning operations and an increased switch to chemical fibres are curtailing demand for cotton and are reducing its share of world fibre use," ICAC has said. World cotton production is projected to exceed mill use in 2012, "which would result in stocks recovering to 10.1 million tonnes". "Production is expected to increase by 11 per cent to a record high of 27.6 million tonnes in 2012. Increased cotton supplies will feed demand in 2012, but high prices and competition from chemical fibres are expected to limit growth in mill use to 3 per cent," ICAC adds. World yarn prices may fall in the coming month as the total cotton supply for 2011 is forecast to hit 196.65 million bales, while the total use is seen to be at 155.25 million bales," ICAC forecasts.
