Weak demand and higher output has depressed world cotton prices and will cost Pakistan more than $1 billion in key textile exports for the fiscal year 2011/12, despite an expected bumper crop, industry officials said on Wednesday.
Textiles and cotton account for nearly 60 percent of Pakistan’s exports and are a major source of foreign exchange for its fragile economy, kept afloat by an $11 billion International Monetary Fund loan secured in 2008.
“This year’s textile exports will be between $12.0 billion and $12.5 billion, because of the fall in world cotton prices,” Yasin Siddik, a top industry official, told Reuters.
Despite severe losses to the cotton crop by 2010’s floods, the value of Pakistan’s textile exports in 2010/11 rose 35 percent to $13.80 billion from $10.22 billion the previous year, mainly because of globally high cotton prices, analysts say.
Pakistani manufacturers of ready-made garments, valued at $1.77 billion in exports last year, fear exports will drop further, citing a significant fall in Christmas demand because of cotton price volatility and Pakistan’s chronic energy crisis making foreign buyers reluctant to place orders.
The International Cotton Advisory Committee said this month world cotton production would rise 8 percent to 26.9 million tonnes for the year. The extra production is expected to drive down prices.
Cotton prices, which doubled and peaked at $2.27 per pound in the first quarter of 2011 on tight supplies and robust demand, have since fallen to less than half that level, where they remain.
Economic turmoil triggered by the downgrade of the United States by Standard & Poor’s could further dampen world cotton demand.
The key December US cotton contract on ICE Futures US dropped 1.92 cents, or almost 2 percent, to end at 95.80 cents per pound on Tuesday, near a 10-month low.
Analysts, who expect the country’s textile exports to total between $12.8 billion and $13.0 billion in 2011/12, say the impact of the turmoil from the US downgrade on Pakistani textile exports would not be much.
“There will definitely be an impact but we need to see what our exports are to the US and Europe,” said analyst Nauman Khan of Topline Securities. “It’s mostly home textile and we don’t think it will take much of a hit.”
Pakistan is expecting a bumper crop of more than 15 million bales. Some industry officials say the increased volume will offset some of the negative impact of a price fall.