Cotton flares 12% on export panic

Communication from government misunderstood to mean more exports.

Cotton prices shot up by over 12 per cent to Rs 41,500 per candy on Friday after a communication issued that day by the commerce & industry ministry created panic in the market. It was misunderstood to mean that the government was pushing exports, though the cotton crop has been affected badly by erratic rainfall.

The textile ministry had allowed the export of 5.5 million bales for a period of 45 days which ended on December 15. The communication from the commerce & industry ministry, a copy of which is available with Business Standard, stated that “it was the decision of the group of ministers that 5.5 million bales of cotton should be allowed for export during the cotton season 2010-11”. This, people in the trade felt, was an extension of the deadline of December 15.
 

SHORT SUPPLY

• The demand for cotton is estimated to be 27.5 to 28 million bales, while the government’s estimate for production is 26.6 million bales
• Production has dropped 40 per cent in Andhra Pradesh, 20 per cent in Maharashtra and 15 per cent in Gujarat 
• Meanwhile, the demand for cotton is expected to stay buoyant. According to market estimates, 4.3 million spindles are likely to be added by the spinning mills next year
• Mills do not want more exports in the near future because that could drive up prices

The textile ministry on Saturday clarified that there was no such extension. Textile Secretary Rita Menon told Business Standard that “the cap was not lifted, and, till December 15, only 3 million bales have been shipped”. However, she added that the government will reopen registration “so that the remaining 2.5 million bales can also be shipped”.

Mills do not want more exports in the near future because that could drive up prices. The demand for cotton is estimated to be 27.5 to 28 million bales, while the government’s estimate for production is 26.6 million bales. This has put pressure on prices. It is estimated that cotton production has dropped 40 per cent in Andhra Pradesh, 20 per cent in Maharashtra and 15 per cent in Gujarat. “Our estimate is that production of 3 million bales has been hit due to the rain; so any further export will create shortage in the months of July, August and September next year, which will result in mills shutting down,” said The Southern India Mills Association Chairman J Thulasidharan.

At the same time, the demand for cotton is expected to stay buoyant. According to market estimates, 4.3 million spindles are likely to be added by the spinning mills in the country next year.

Some mills alleged that because of the commerce & industry ministry’s circular, some foreign buyers have started to place orders for cotton. This, they said, fuelled the price rise on Friday. KPR Mills Managing Director P Nataraj said that exporters too have assumed that the deadline has been extended. This was a miscommunication, though there was no extension of the deadline of December 15.

Meanwhile, the directorate general of foreign trade, the trade arm of the commerce & industry ministry, from now will register cotton export contracts instead of the textiles commissioner, the Friday circular said. No reason was assigned for the switch.