According to USDA’s latest forecast of global cotton market trends, Pakistan is all set to import 6.40 million bales (of 170 kg) in the ongoing marketing year (2021-2022). This will be the highest cotton import volume in the country’s history, following previous peak import of 5.2 million bales, recorded in FY08.
That year, cotton consumption by local spinning industry reached the 15.4 million bales mark, the only time Pakistan recorded annual cotton demand in excess of 15 million bales. Estimates suggest that cotton to MMF ratio at that time was close to 75:25, which has since dropped to 65:35 as a result of growth in knitwear segment and growing use of man-made fibre in the yarn mix.
Between FY16 to FY21, local cotton consumption averaged at 13.5 million bales – excluding Covid year (FY20) dip – with little variation from mean. Including carryover inventory from last year, USDA projects cotton consumption to reach 14.6 million bales in the ongoing year, highest since FY09, and second highest ever. Coupled with greater polyester use, this may finally spark momentum in the lifeless local yarn output, which has remained static at 3.4 million metric tons for many years now.
But missing from USDA’s equation is the fresh forecast of local cotton output, which as per GoP sources has been revised upwards to 9.37 million bales in the last Cotton Crop Assessment Committee meeting. This means USDA’s local production forecast is short by 0.8 million bales, which may be incorporated into the agency’s forecast next month.
Based on last available estimates from Pakistan’s Cotton Ginners Association, it appears that national production is very much on track to reach 9.4 million bales. Readers will recall that domestic cotton output has posted a sharp recovery, as crop yield in Sindh witnessed a rebound (while output in Punjab may remain unchanged over last year at roughly 5 million bales).
However, risk persists that cotton arrivals in the southern province may witness an early peaking. According to Karachi Cotton Association, cotton prices have risen by 15 percent over the past fortnight, which lends credence to thesis that crop arrivals may have lost their earlier stupendous momentum due to early peaking.
Whether crop arrivals are on track will soon be confirmed with the release of PCGA’s mid-November report. If cotton output in Sindh remains shy of 4 million bales for the full season, national cotton output returning to double-digit territory will remain a distant dream.
Either way, USDA’s cotton consumption forecast is predicated on carryover inventory of 3 million bales from last year, which appears erroneous. Market research suggests that local mills were sitting on very low inventory from 2020-21, which contributed to the one-third rise in local yarn prices compared to the previous year by September 2021 despite record arrivals from fresh crop harvest.
Moreover, monthly trade report card as per PBS shows that Pakistan imported 1.4 million bales between July – October 2021. At this rate, annualized import volume may clock in the vicinity of 4 million bales. Value analysis indicates that the growth momentum of cotton imports has finally plateaued, which may be a result of combination of factors, including both higher prices in the global market, and improved domestic output.
If cotton prices continue to grow at current trajectory, exporters’ ability to pass on higher raw material prices may get hamstrung, as shall demand for value-add textile materials in buying destinations. Raging trade war between USA and China shows it is unlikely that brakes be pushed on the rise and rise of international cotton prices, especially in the aftermath of Xiangyang ban and reserve building by China’s public sector.
Unless these fundamentals change, it is unlikely that cotton consumption by mills may see a fresh peak, and shall remain rangebound under 14 million bales instead.
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