Cotton imports: fresh peak?

Over the weekend, Pakistan Bureau of Statistics released its monthly trade report card, noting an alarming increase in the cotton import bill. 5MFY22 raw cotton import bill has increased 78 percent over same period last year, even as quantity imported recorded much more tapered growth of a little less than 32 percent.

That Pakistan has had to open the floodgates for imported cotton in the aftermath of repeated crop failures has now become common refrain. However, the pace at which raw material import bill has risen in the ongoing fiscal year is primarily attributable to international market prices, which reached their 125-month high in November 2021.

But is the import bill showing any signs of easing? So far, imports of only 1.4 million bales have been made between July and November 2021, according to PBS data, at average unit price of $2.14 per kg. Although average price of imports during the five-month period is still well under 12-month forecast, month-on-month import price is steadily rising.

Highest monthly quantum of imports so far landed during November, at average price of $2.28 per kg, up 30 cents since June. Meanwhile, 6-month moving average of global Cotlook “An” index climbed to $2.36 per kg, another decade high.

So what does rest of the year look for cotton imports? Local cotton output has finally hit a snag, with hopes of any reversal in fresh arrivals dashed as the country enters wheat cultivation season in full swing. According to Pakistan Cotton Ginners Association (PCGA), cotton arrivals at local ginning factories fell short of 7.3 million bales by mid-December, with little hopes of the final tally making beyond 7.5 million bales.

Given low carryover inventory from the previous year, Pakistan’s annual import requirement during FY22 is anywhere north of 5 million bales. In FY21, import of 5 million bales made at (pandemic-driven) decade-low prices had raked in an import bill of $1.5 billion. With international prices at their peak, import bill is all set to breach $2 billion in the ongoing year.

Cotton import bill forecast faces a lot of upside and very little downside during the second half of the ongoing fiscal year. And with the country placing all its bets on textile exports revival, these imports must remain welcome. H2FY22 may very well see cotton imports quantum witnessing fresh heights. Policymakers cannot claim to be taken by surprise this time.