KARACHI: Cotton prices in Pakistan have surged sharply over the past few days because floods destroyed the cotton crop.
According to analysts of AKD Research issued on Thursday, local cotton prices have traded up over the past month, increased by 24 per cent to Rs22,506 per 40-kg, having reached a recent high of as much as Rs24,649/40-kg on August 27, 2022.
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The sharp uptick in prices was driven by expectations of supply-side constraints in the cotton market in the aftermath of the floods that left one-third of the country submerged in water.
According to latest estimates from the UN, about 3.6 million acres of crop land has been destroyed in the floods, with the majority of the devastation concentrated in Sindh (2.9 million acres affected).
In a recent address, Finance Minister Miftah Ismail pointed towards all of the cotton crop in the province of Sindh having been damaged by the floods – indicating that about 30 per cent of the national cotton crop has been lost.
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Resultantly, Pakistan is expected to meet the supply shortfall by importing cotton of $1.5-2 billion,
Latest data released by Pakistan Cotton Ginners Association (PCGA) showed that cotton arrivals in the ginners were down by 0.25 million bales when compared to the same period last year, with 1.54 million bales having reached by September 2022. The slump was largely driven by a shortfall in Sindh, where 0.84 million bales arrived at the ginners, lower by 0.4 million bales or 33 per cent year on year.
The COTLOOK A Index is currently trading at USc122/lb, compared to USc104/lb on September 06, 2021 and FY21 average of USc82/lb.
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The prices have, however, eased from a high of USc173/lb reached in May 2022. Higher prices in the international arena are being driven by adverse climate conditions across the globe, with India suffering from heavy rains and pest attacks, while the US has experienced a drought in the cotton-growing region of Texas (the state has experienced the second driest year in 128 years so far this year).
To note, the US accounted for 33 per cent of total cotton shipments in FY22, and the US Department of Agriculture estimates 66 per cent of the cotton producing area has been experiencing a drought.
Moreover, the US has downward revised the global output for FY23 by around 3 million bales in recent WASDE reports, with the output now expected at 117 million bales.
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The analysts said that textile players in Pakistan build the majority of their inventories during the December Quarter, although the damage to local crop may hinder local procurement. However, the analysts expect the companies to meet this shortfall through imports.
