Pakistan’s cotton imports fell by 0.8 million bales during CY22, clocking in at just 4.5 million bales (of 170kg). Cotton import volume during 2022 was recorded as the lowest in the last three calendar years. This comes at a time when Pakistan’s cotton output during Kharif 2022 fell to its lowest level in at least four decades.

Yet, weaker imports didn’t stop the forex bleeding. Higher cotton pricing in the international market dragged up the import bill by nearly 10 percent over the previous year. This resulted in local spinning factories raking in the highest raw cotton import bill in the country’s history during CY22, shying off the two-billion-dollar mark by just a trickle.

Lower imports resulted in a marked decline in cotton consumption by the milling industry. Based on in-house estimates, Pakistan fell to the fifth spot globally in cotton consumption, most certainly falling below Bangladesh, and potentially also below Viet Nam. Sector watchers would recall that Pakistan has remained the world’s third-largest cotton spinner for at least the last six decades, only smaller than China and India. However, years of a secular decline in local cotton production have slowly shrunk the processing industry as well.

Meanwhile, the devastating floods during the monsoon of 2022 finally brought the local industry to its knees. Pakistan fell to the seventh position in world cotton output, as production in Australia and Turkey outstripped production in the erstwhile third-largest world cotton producer.

But higher pricing alone may not fully explain the decline in import quantum. Although higher prices trimmed import demand in most other importing nations as well, the reduction in imports by Pakistan fell by a significantly larger margin compared to other regions. Bangladesh, China, and Viet Nam recorded a one to three percent decline in import volume during 2022, compared to Pakistan where import volume fell by at least 15 percent. It appears that the liquidity crisis in the local forex market tightened the screws on cotton importers, leading to a massive decline in the volume imported.

Yet, it may not be all bad news for local industry, especially the larger vertically integrated players. Local market trends indicate that despite constrained supply, raw material fiber prices have not spiraled out of control for at least the last three months. More importantly, delayed imports for contracts already reached back in Jul-Sep 2022 – when international prices were at least 25 percent higher – may now result in those contracts being washed out; allowing the spinning industry to import raw material at significantly lower prices, generating substantial savings in the process.

If cotton imports finally open up once the forex crisis is alleviated as a result of an agreement with the IMF over the next month, higher import volume coupled with lower unit prices during the H2 of the fiscal year 2022-23 May even things out for the local industry. Here is an upbeat FY23 report card for the spinning industry, after all!