Pakistan’s cotton import dependence may be underestimated

According to USDA, cotton imports of Pakistan have risen slightly in recent years, and cotton consumption basically maintains at 2.10-2.30 million tons, though it reduces to below 2 million tons in 2022/23 affected by the flood. USD forecasts that the cotton imports in 2022/23 season are flat from 2021/22 season, and the import dependency reaches a five-year high of 51%. USDA forecasts that cotton imports of Pakistan may be 980kt in 2022/23 season, but we estimate that the imports may be higher. Pakistan has purchased 420kt of U.S. cotton, and meanwhile, Pakistan also purchases large quantity of Australian and Brazilian cotton due to their good price performance. Cotton imports are likely to reach above 1.05 million tons, and the import dependency may be higher. Of course, the cotton imports need enough foreign exchange reserves. If the subsequent shortage of foreign exchange reserves leads to abnormal settlement, then a large-scale breach of the contracts may lead to a further strengthening of local cotton prices, and at the same time, large quantity of cotton will flow to other regions, like Southeast Asia, which may suppress cotton prices in the short term.