Uncertainty over cotton exports keeps prices high, textiles industry worried
Sharad Matade 28 December 2010

Government delays decision to allow more cotton exports as cotton traders wait eagerly to take advantage of higher global prices  

The uncertainty over increasing cotton exports and the delay in issuing licences for export may result in excess domestic supply of cotton that could pull down the current high prices, according to traders. But textiles manufacturers are concerned that unseasonal rain could curtail production and an increase in exports would only compound the problem.

Cotton has been in short supply since April, but prices started moving up in the middle of the year on hopes of increased exports to exploit the higher prices internationally. A candy of cotton (356 kg) sold for as high as Rs47,000 in October compared with Rs23,000 in the corresponding period a year ago.

In response, the government capped cotton exports at 55 lakh bales and that for cotton yarn at 720 million kg. However, this has not reduced prices much, as traders believe that the export limit could be raised any time.

“If the government does not increase the limit of cotton export from the current ceiling of 55 lakh bales, it may lead to an increased supply in the domestic market and impact cotton prices,” says Dhiren N Sheth, president of the Cotton Association of India (CAI).

V Ravichandran, vice president of South India Cotton Association told Moneylife, “If cotton supply increases in the domestic market, prices could come down by as much as Rs1, 500 to Rs2, 000 per candy.” Cotton prices are currently at around Rs40,000, still high on expectation of an increase in the cap on exports. Also, recent reports have suggested that the record cotton production of 325 lakh bales expected earlier may not materialise due to unseasonal rain that has destroyed crops in major cotton-growing states.

While the government permitted export of 55 lakh bales from 1st November to 15th December, only about 25 lakh bales have been shipped out of the country, and this is being seen as a possible reason for the delay in increasing the export limit.
 
But, Prabhakar Kelkar, general secretary, Bhartiya Kisan Sangh, attributed the lower export to the late decision by the government on the quota. “The government should have issued the permission for export of cotton in August. Due to the delay in the government’s decision on the export limit, exporters could not meet the target of 55 lakh bales by 15th December. Now this is affecting the decision on the next slot of exports,” Mr Prabhakar told Moneylife.
 
Last year, India exported 85 lakh bales, when cotton production was 295 lakh bales.

Commerce Secretary Dr Rahul Khullar, was quoted as saying that the decision on exports would be taken mid-December, but nothing has happened yet. Messages to the Ministry of Commerce and the Ministry of Textiles on the exports issue were not answered.

The textiles industry is opposed to any increase in cotton exports as it could push cotton prices in the domestic market up further. The Confederation of Indian Textiles Industry (CITI) has said there is no justification to setting an export target on anticipation of production, when the output of a commodity like cotton is entirely dependent on weather conditions.
 
“We estimate that production would not be more than 300 lakh bales, after unseasonal rain has slowed down production of cotton. Now, after exporting 55 lakh bales, we would have 245 lakh bales and domestic requirement is more than 260 lakh bales, so our stock position in the country would be very tight,” IJ Dhuria, head of raw materials, Vardhman Textiles Limited told Moneylife.

A senior official of Cotton Corporation of India thought that the recent rain would have only a little impact, reducing cotton production by 5-7 lakh bales. The Cotton Association is still hopeful of a production of 347 lakh bales in 2010-11.

CITI argues that the government should allow an increase in exports only after the domestic requirement is fulfilled. “Cotton arrivals are already late. There is a season of cotton production and arrivals, but export can be done anytime. Cotton should be exported after February, by which time we would have a better idea about the availability of cotton and how much surplus can be exported,” says DK Nair, secretary-general of CITI. 

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