Cotton imports are inevitable

Almost every year, Pakistans textile industry begs the government to save them. And this year is no exception either. Indeed, the way the industrys woes were left unaddressed this year, shows the height of ignorance, as after profusely exporting raw cotton earlier this year, the industry is now importing the commodity from India.
Current cotton arrivals during the first seven months of current fiscal year rose 16 percent year-on-year to 12.51 million bales, according to Pakistan Cotton Ginners Association (PCGA).
But, despite this increase, figures suggest that 0.6 million bales of cotton have been imported until now whereas more than 0.2 million bales are in the pipeline - a number that is expected to total 2 million by the end of the fiscal year, according to sources.
Most big players in the value-added chain buy their yearly supply of cotton at the start of every calendar year. Unfortunately, due to excessive export of raw cotton, the industry is only left with 0.8 million bales unsold - about four to six weeks of inventory - as against 4 million bales required for the remaining period.
And this is, if one relies on PCGAs data, which report 0.79 million bales of exports in the first seven months, as against 3 million bales of exports reported by the Federal Bureau of Statistics in the first six months.
Since, Pakistani cotton is still an attractive option for international buyers, overseas sale isn likely to ease any time soon; hence the thesis that unchecked exports are putting at risk the fragile recovery of Pakistans textile industry.
But interestingly, importing cotton from India sets a stage for windfall gains. In the international market, Indian cotton is priced about 5-7 percent lower than Pakistani cotton, due to oversupply conditions.
This essentially provides cotton traders and brokers a good opportunity to export Pakistani cotton and fill domestic appetite by the Indian commodity. Unlike these big players, however, who import at a larger scale and are somewhat hedged against price hike, small cap spinners would likely remain under pressure in the current and upcoming quarters.

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COTTON ARRIVALS

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                 Jul-Jan   Jul-Jan

bales (mn)         FY10     FY09    %()

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Total             12.51    10.82       16%

Export             0.79     0.29      172%

Sales to mills    10.91     8.84       23%

Unsold bales       0.81     1.54      -47%

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