Pakistan’s textile exports may decline sharply

According to foreign reports, Pakistan’s textile exports will see a sharp decline, or at least so according to the latest monthly trade report of the Pakistan Bureau of Stati…

According to foreign reports, Pakistan’s textile exports will see a sharp decline, or at least so according to the latest monthly trade report of the Pakistan Bureau of Statistics. The statistics bureau reported that most of Pakistan’s exports of mid- to low-end textiles showed double-digit declines from July to October this year. If the export volume of clothing had not remained stable, the country’s textile exports would have experienced negative growth.

At present, the decline in Pakistan’s textile exports is showing a spreading trend. It may not be long before clothing exports will also “surrender”. At least this is what cotton imports from July to October this year look like. According to data from the Pakistan Bureau of Statistics, Pakistan’s cotton imports from July to October this year were just over 1 million bales, the lowest level since September to December 2019. However, at that time, Pakistan’s cotton imports were subject to extremely high tariffs. Therefore, excluding this stage, cotton imports from July to October this year were the lowest level in more than ten years.

While cotton imports have declined, major floods in Pakistan have caused cotton production to drop by nearly half, and the current production forecast has dropped to the level of 4.5-5.5 million bales. If the current average monthly import level of 250,000 bales continues, the annual cotton import volume will not exceed 3 million bales, the lowest since fiscal year 2016, when Pakistan’s domestic cotton production was 10 million bales. For most of the past decade, Pakistan’s cotton consumption has ranged from 12.5 million to 13.5 million bales, and cotton imports in recent years have accounted for 40% of total demand. However, the amount of cotton used by factories is likely to fall sharply this fiscal year due to a sharp reduction in domestic cotton production and a sharp decline in imports.

In addition to supply-side issues, cotton prices and downstream demand are also important reasons for the reduction in cotton imports. First, as international cotton prices plummeted by nearly 50% from May to November, the Pakistani textile industry began to re-sign contracts in order to obtain lower prices. Since August 2022, Pakistan’s monthly average cotton import price has exceeded the monthly average price of the international market during the same period, changing the previous situation where the average import price continued to be lower than the international cotton price.

It now appears that as the Pakistani industry bet on a sharp rise in international cotton prices, it is now overwhelmed by stocks of raw materials at peak prices, just as the recession has begun to spread in major export destinations. Therefore, despite the significant reduction in domestic cotton supply, gauze production did not rely more on imports, but continued to decline.

For 2023, once the domestic cotton market ends and winter passes, Pakistan’s cotton imports are likely to pick up, which will also more clearly reflect the specific extent of the economic recession in the export destination. However, even if the average monthly cotton import volume doubles from now, it will be difficult for the annual import volume to reach the peak of 5 million bales in the past two years.

From the current point of view, Pakistan’s textile export volume in fiscal year 2023 is inevitable. It remains to be seen whether the drop in demand will immediately evolve into a drop in the export price of low-end products. The last time the international cotton price remained below 80 cents, Pakistan’s textile exports stagnated (2015-2020 fiscal year). It will take time to tell what will happen this time.


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Author: clsrich