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Insight | Time: Mar 8 2021 3:44PM
Impacts of re-opening of trades between Pakistan and India on Indian cotton yarn
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Pakistan may allow local textile mills to import Indian cotton yarn
Recently, Pakistan media released news that peak season of consumption and transfer of orders intensified tight supply of cotton yarn. The surge of raw materials increased production costs of downstream textile mills, and apparel exporters also concerned that they could not delivery overseas orders on time.

Participants along textile industrial line exerted pressure on Pakistan government continuously and required permission to import Indian cotton yarn in order to ease the tightness of cotton yarn supply. APCPLA even put forward requirement for the government to guarantee free duty on imported cotton yarn. Abdul Razak Dawood, former Minister of Commerce of Pakistan and current government commercial adviser, said on social media that the Premier worried about the shortage and rise of cotton yarn price and indicated to take necessary measures including cross-border trades of cotton yarn to keep value-added export.

In the morning on Mar 5, Pakistan media released news that Premier Imran Khan has allowed local textile mills to import Indian cotton yarn. But according to CCFGroup, it was not officially confirmed and the spinners and traders also said that the policy has not been implemented. Thus, what鈥檚 the effect on Indian cotton yarn market if the trades between Pakistan and India resume? And what鈥檚 the importance of Pakistan on Indian cotton yarn export market?

Indian cotton yarn exports to Pakistan and changes in shares
Before India-Pakistan conflict in the second half of 2019, they kept close trade relations in textile industry. Pakistan gradually became the major export destination of Indian cotton yarn in past decade. The chart below showed Indian cotton yarn exports in Jun 2019. The export volume of Indian cotton yarn totaled 570kt in Jun 2019, of which 3.5kt moved to Pakistan, accounting for 6%. In the first six month, the exports amounted to 529kt, of which 24.5kt moved to Pakistan, accounting for 4.62%.

In 2012-2019, Indian cotton yarn exports to Pakistan increased year by year. It was 7kt in 2012, account for 0.7% of total cotton yarn exports and hit the highest 68kt in 2018, accounting for 5.6%. Indian cotton yarn shared 7.4% on Pakistani market in 2017, the highest during 2012-2019. For India, Pakistan also ranked higher in Indian cotton yarn export destinations and since 2016, it has stayed in top three. On the whole, Indian cotton yarn export had a certain dependence on Pakistan market which had favorable consumption capacity, and the geographical proximity also advantaged cotton yarn trades between them.

The impacts on Indian cotton yarn market if import of Indian cotton yarn is reopened
After Chinese Spring Festival, Indian cotton yarn price moved all the way up, mainly supported by the surge of raw materials and downstream demand. ICE cotton futures plummeted last week and May contracts once declined below 86cents/lb. Spot Indian cotton also retreated, but cotton yarn stayed at high level. According to CCFGroup, the operating rate of Indian local spinners remained high and the inventory averaged at less than one week. In addition, most spinners pre-sold Mar and Apr cargos and traders were also reluctant to lower prices for sales despite spot stocks at hand. Downstream demand and plentiful orders underpinned the price of Indian cotton yarn. By Mar 5, no Indian cotton yarn producer has adjusted down price due to volatile downward cotton price.銆

Currently uncertainty of macro environment obscured commodity trend in the future, as well as Indian cotton yarn price. Although demand for Indian cotton yarn in China reduced due to over high price, if Pakistan allows the import, Indian cotton yarn export will improve again and the demand will increase further as Pakistan market will help consume a part of Indian cotton yarn capacity. Indian local textile mills may face tight supply and the shipment may be delayed. It may become next support for Indian cotton yarn price.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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