The unthinkable has happened. Raw cotton prices in the local market have fallen to their lowest levels in 21 months (LCY) during October 2023, making the white gold a conspicuous exception to agri-commodity prices denominated in local currency. This happened at a time when cotton prices have been slowly inching forward in the international market in recent months, climbing some 6 percent since June 2023 after hitting a two-year bottom that month. What’s going on?

The ‘unthinkable’ – in fact, has been long in the making. Cotton prices in the global commodity market have been on a secular decline for over a year now, declining some 43 percent between May 2022 and May 2023, from an 11-year peak of $3.61 per lb to $2.07 per lb by May 2023. Since then, cotton prices have been their slow march forward, as the supply-demand conditions in the global commodity market have not indicated a significant surplus after fresh crop arrivals begun in major markets such as China and India.

In fact, global cotton production is expected to slide by 6 percent in the ongoing marketing year of 2023-24 as output is forecast to drop across all major producers such as China, India, US, Brazil, and Australia. In fact, Pakistan is the only conspicuous exception among major producing nations where output is slated to rise by nearly two-thirds, as the crop recovers from the monsoon floods of last year and stage a spectacular comeback.

However, even as world cotton prices trickle up and become rangebound between $2.0 - $.2.25 per lb – significantly above the average price for the last decade – prices are finally sliding in the domestic market for reasons unrelated to supply-demand conditions. The 21-month low in the local market has been achieved primarily on the back of stability in the currency market, which has helped arrest the rise of cotton prices in recent months (in line with global trends). Pakistan is in fact witnessing the delayed transmission of the decline in global prices recorded between June 2022 and June 2023, which was until recently being cancelled out by the massive depreciation in the exchange rate. As the exchange rate achieves much wanted stability, local prices are offering a sense of calm, even if the international market is not.

What does this mean for the local textile value chain? Stability in the pricing of the primary raw material, along with restoration of domestic supply means cost of production for local producers and exporting value chain is falling at a time when the local industry is battling with the headwinds of high energy tariffs and wage pressures. Although industry associations are fighting tooth and nail to have the RCET regime restored (and might just get it now that they have one of their own at the commerce ministry’s helm), even if concessions in energy tariffs are not offered, ample availability of raw material at competitive pricing may just give the industry the edge needed to achieve competitiveness again.

Will it happen? It is hard to say. But if textile prices in the local market rise substantially in the coming months despite a decline in raw material prices, it may be a sign that the industry is mustering all its efforts towards securing orders in the exporting destinations. However, if prices plateau (or even decline) in the domestic wholesale market, it just might indicate that even competitive raw material pricing does not suffice to be export competitive, unless cheap supply of energy is also ensured.