The Pakistani rupee has depreciated heavily against the US dollar. Pakistan's foreign exchange reserves have been depleted to an all-time low of US$3.09 billion, which can meet only 18 days' import demand. In addition, there is a heavy dependence on imports for local food and energy. Which has a serious impact on the normal life of the Pakistani people, and its economic challenges. As the world's fourth largest cotton producer and fifth largest cotton importer, this crisis will bring definite impact on global cotton imports and exports.
There has been a steady depreciation of the Pakistani rupee against the US dollar, and the currency has depreciated by around 10% around January 26, 2023. In such a situation, the prices of cotton also increased.
With concerns over currency depreciation and exchange settlement credit risks, imported cotton was difficult to market. Meanwhile, energy prices increased by about 112%, making it difficult for downstream mills to operate.
Cotton imports have been active in the last two years, but there are risks on subsequent exchange settlements. In the 2022/23 season, Pakistan is actively buying imported cotton, and the import volume continues to increase.
- Pakistan has signed several US cotton contracts in the 2021/22 season, and as of February 2, 2023, 2022/23 US cotton purchases have reached 420kt, the second largest US cotton export with a ratio of 19% is the destination.
If the shortfall in foreign exchange reserves persists and there is no effective solution, the swap deal on cotton imports will face risk.
Pakistan traders say that there may be some problems in imports, as there is no foreign exchange available at disposal and there is no problem in exports temporarily.
- According to the USDA, Pakistan's cotton imports have increased slightly in recent years, and cotton consumption has basically remained at 2.10-2.30 million tonnes, although it fell to less than 2 million tonnes in flood-hit 2022/23 Is.
- The USDA forecasts cotton imports in the 2022/23 season to be flat from the 2021/22 season, and import dependence to reach a five-year high of 51%. Pakistan's cotton imports could be 980kt in the 2022/23 season.
- Pakistan has bought 420kt US cotton, and meanwhile, Pakistan has also bought Australian and Brazilian cotton in large quantities due to good price performance. Cotton imports are likely to touch above 1.05 million tonnes, and import dependence could be high.
Pakistan's cotton textile industry has faced a difficult situation in the 2022/23 season. As the cotton supply gap widens due to the large production shortfall, and in the context of import dependence, the textile industry may find it more urgent to import cotton in the 2022/23 season.
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