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Coronavirus
HIGH Source: covid.gov.pk
Pakistan Deaths
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3124hr
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1,75724hr
3.61% positivity
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173,210

Pakistan has recorded its highest monthly cotton import volume in Feb-20, in line with the shortfall in domestic production during the ongoing season. But this may only be the tip of the iceberg.

As per the latest trade figures released by PBS, total import during 7MFY20 now stands at 1.38million bales. Inclusive of domestic output of 8.6 million bales, this brings available supply for the year to a little under 10million bales. At monthly demand from the spinning sector of 1.25million bales, that’s barely enough to meet 8-month demand, leaving a deficit of additional 5 million bales, slated to be imported between Mar-June, FY20 (For more, read ‘Watch out for cotton imports, published on Dec 11, 2019).

Much has already been said about the incremental cost to CAD of the deficit in domestic raw material output. Although channels checks made with bankers back in Dec-19 stand validated that spinners had long ago hedged against the shortfall by booking advance import contracts (For more, read ‘Cotton imports prorogued’, published on Feb 14, 2019).

According to PBS, average unit cost of import during Feb-20 comes out at $1.65 per kg, whereas raw cotton price in the international markets during the month had averaged at least 10cents higher. Importers’ foresight in booking orders way back in Aug-19 - when price had touched the low of $1.4 per kg – appears even more heartening considering PBS figures are inclusive of freight and insurance expense, which would take actual unit cost much lower than $1.65.

If the importers’ foresight holds in the coming months as well, cotton import during the remainder year should add no more than $1.5 billion to the annual bill, ensuring that the total import value for FY20 is restricted under $2 billion. The loss to CAD curtailment efforts notwithstanding, slated import quantum will place the country among top four importers of cotton in the world, trailing Bangladesh only by a small margin.

But that’s only the base case. According to Pakistan Cotton Ginners Association, unsold cotton stocks at the beginning of Mar-20 stood at just 0.6 million bales; incremental imports during Feb-20 takes available stock to twice that number, which is under one-months’ demand. There is little cause to worry if shipments were to go as planned, but with the slowdown witnessed in logistics due to the COVID-19 pandemic, it seems that all bets are off.

The situation will become increasingly tenuous if the spasms continue beyond Mar-20, as unavailability of stocks may force spinners to cancel orders. That could have a dangerous domino effect for the export value chain, which has finally begun to show nascent signs of recovery. Fingers crossed

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