Pakistan cotton trade to take a hit with China seeking to release its stocks

China is the world’s leading consumer of cotton, with an annual consumption of some 34 million bales as per USDA estimates seeks to release its government stocks, rather than rely on imports. For Pakistan this is a bad news, considering the importance of the Chinese market to their cotton industry.

Pakistani cotton and its related exports (HS code 52- ) make up around 16 percent of its total exports as of FY15. For these cotton exports, China is their largest market; at over 38 percent of total cotton trade and 6 percent of their $24.5 billion total exports, their most friendly neighbour contributes a great deal to their foreign reserves.

The malaise surrounding Pakistani textile industry has just won end. To throw some fuel on the fire, China plans to release some 4.6 million bales out of its own reserves this year.

For the fiscal year ended July 2015, cotton trade with China was already down by 15 percent year-on-year. It was no secret, however, as the lackluster demand from China has often been cited as one of the several factors behind the dying textile industry.

According to BR Research not only has China been buying less, but the cost of production – as is the case throughout the industry – in Pakistan is too high and sellers cannot agree on a price suitable to Chinese buyers.

Moreover, China has recently devalued the Yuan to improve its exports and, conversely, reduce imports. So, with the Yuan-Rupee parity much lower than it was before, the year ahead might witness a further decline in exports to China, not to mention a surge in imports coming in from China. This is a double whammy for the local industry that the reason FBR is trying imposing a 5 percent regulatory duty on the import of yarn.