Pakistan’s textile sector stands at a crossroads, with near-term opportunities emerging from rising global cotton prices and demand, though significant challenges loom on the horizon.
According to reports, global cotton demand is expected to grow by 2% in 2026-27, primarily driven by the United States and the European Union. Meanwhile, the United States Department of Agriculture forecasts a 3.8% year-on-year decline in global output, which is likely to keep cotton prices elevated on a comparative basis.
The recent uptrend in cotton prices and demand presents a near-term opportunity for Pakistani exporters.
Global Cotton Prices Surge Amid Tightening Supply
The global cotton market has seen remarkable momentum this year. The COT A Index has surged 22% year-to-date to $0.84 per pound, while domestic Pakistani cotton prices have followed suit, rising 18% to Rs18,300 per maund, despite a 2% correction in July 2026, according to JS Research.
This price increase reflects a more positive outlook for cotton textile demand in key consuming markets, including the US and EU.
It may be mentioned here higher oil prices pushed China’s PSF prices 32% above December 2025 levels, narrowing the cotton-PSF price gap to as low as US$0.15 per pound during March to May, compared with a pre-war six-month average of $0.27 per pound.
However, the recent decline in PSF prices, coupled with higher cotton prices, has widened the gap to over $0.30 per pound, which could influence textile manufacturers’ input choices going forward.
Government Sets Ambitious Cotton Production Targets
On the domestic front, the Pakistani government has set an optimistic cotton output target of 9.642 million bales for FY27, representing a 37% year-on-year increase, though still 6% below the FY24 peak of 10.2 million bales. This ambitious target assumes a 7% increase in cotton sowing area and a 27% year-on-year improvement in crop yields to 759 kg per hectare.
However, JS Research analyst Shagufta Irshad suggests this target appears “somewhat optimistic,” noting that provisional data from provincial agriculture departments indicates only 74% of the sowing target has been achieved so far, while cotton arrivals at ginners have already started.
Even assuming 100% achievement of the sowing target, the 9.6 million-bale production target appears ambitious. That said, the recent uptick in local cotton prices, in line with international trends, could encourage farmers to retain cotton acreage rather than shift to other kharif crops, particularly rice, which could help support domestic supply.
The India-EU FTA Looms as a Competitive Threat
A significant challenge is the impending India-EU Free Trade Agreement, which is likely to become effective from 2027. This agreement could pose a challenge to Pakistan’s competitiveness going forward, the JS Global analysis warns.
Western buyers continue to diversify their sourcing base to reduce country risk across Asian suppliers, while China’s cotton imports and textile exports have evolved over the years, with production increasingly shifting to Vietnam and exports diversifying toward the EU and other markets amid high US tariffs.
The India-EU FTA would further reshape the competitive landscape, potentially giving Indian textile exporters preferential access to the lucrative European market.
Government Policy Measures Offer Some Relief
The report acknowledges recent government initiatives as encouraging, including tax relief measures, interest rate adjustments, energy price relief, and liquidity support for the sector.
Nevertheless, the analysis emphasizes that long-term policy measures to promote vertical integration will remain critical to maintaining competitiveness in the evolving global landscape.
While short-term relief measures are welcome, the report suggests that sustained policy focus on building a more integrated and resilient textile value chain is essential for Pakistan to navigate the challenges ahead.
While Pakistan’s textile sector faces significant structural challenges, particularly the India-EU FTA and global shifts in textile sourcing, the current price environment and demand outlook offer a window of opportunity for exporters who can capitalize on the favorable market conditions.
The coming months will be crucial in determining whether Pakistan can leverage the near-term price advantage while building the long-term competitiveness needed to thrive in an increasingly challenging global marketplace.
