FY26 Outlook Positive as Local Cotton Prices Slide
Staff Report
Cotton prices in the local market have dropped to a 21-month low. At the Karachi Cotton Exchange, prices currently stand at Rs16,600 per maund, compared to Rs18,000 at the beginning of CY25 — down 8%. The decline is more pronounced when compared to the last harvesting season (July–Oct 2024), where prices averaged Rs18,200/maund, reflecting a 9% fall.
In contrast, international cotton prices have remained relatively stable since the beginning of CY25.
Previously, local cotton traded at a premium to landed international prices, driven by supply chain concerns, higher input costs, and inventory buildup by textile companies. However, prices have now realigned with imported cotton rates.
FY26 Budget: Proposed Stock Market Measures
4QFY25: Average Local Cotton Price Falls
ocal cotton prices have been on a declining trend for the past six months, with a sharp drop of 6% QoQ in 4QFY25. Notably, international cotton prices remained flat during the same period. Despite PKR depreciation against the USD, local prices declined due to subdued global demand — reflected in Pakistan’s textile exports falling 6% QoQ.
Persistent inventory losses in recent quarters also triggered liquidity constraints for smaller spinning mills, weakening demand and adding downward pressure on cotton prices.
Declining Prices Threaten Local Cotton Output
During the previous harvesting season, local cotton prices averaged Rs18,000 per maund, and Pakistan’s cotton production stood at 5.5 million bales in FY25. With current prices lower than last year and global cotton rates also under pressure, there is a growing risk that domestic production may decline further in FY26.
Key Sector Data (Textile Composite)
• Current Market Cap (Rs bn): 452
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Source: PSX, Sherman Research
Pakistan’s Cotton Balance Sheet: Increasing Import Dependency
To recap, domestic cotton production fell 34% YoY in FY25 to 5.5 million bales, down from 8.4 million bales in FY24. As a result, the cotton import bill surged to US$1.3 billion in FY25, up from US$450 million in FY24.
Pakistan’s total cotton demand is estimated at around 10 million bales annually, with local production now meeting only 50% of the requirement — the remainder fulfilled through imports.
Favorable for Export-Oriented Units
The ongoing price decline may result in significant inventory losses for spinners and composite units in 4QFY25, as their average procurement cost is estimated at Rs18,000–18,500 per maund.
Nonetheless, the outlook appears more favorable for value-added textile exporters. Lower cotton input costs may support margin recovery in FY26, especially for high-end textile segments.
