Demonetisation: Cash crisis hits cotton availability

The price of cotton in Mumbai has risen by 3% since the announcement on withdrawal of currency notes

Cotton exports are being hit by the demonetisation effect. With farmers in a liquidity crisis and traders and wholesale markets not functioning in many places, arrivals have reduced. The price of cotton in Mumbai has risen by three per cent since the announcement on withdrawal of currency notes. In this period, the rupee has fallen by 2.5 per cent and the international benchmark price by four per cent; so, there is scope for improving exports. However, supply is a current problem.

Export during October and November was around 200,000 bales as against 450,000 a year before. The cotton year in India starts in October, as does export. In October, local prices were high and export was not viable. This month, it should have picked up due to the price advantage.

There was an existing problem with export to Pakistan and China. The latter has been reducing cotton buying for two years due to excess stock. Geopolitics is the problem with Pakistan; it imported 2.1 million bales last year but is expected to take only 0.5-07 mn bales this year, according to Prerana Desai, vice-president at Edelweiss Commodity Research. Even this will via other countries.

According to the Washington- based International Cotton Advisory Committee, “World cotton imports are forecast to increase by four per cent to 7.5 million tonnes in 2016-17. Bangladesh is projected to increase its volume of imports by 10 per cent to 1.2 mt and Vietnam by 15 per cent to 1.1 mt. Exports from the United States are expected to rise by 26 per cent to 2.5 mt, as the abundant crop this season will provide a large exportable surplus. India, on the other hand, is likely to see its exports fall by 34 per cent to 825,000 tonnes as stocks are replenished after declining by 21 per cent to just under two mt by the end of 2015-16.”

Bangladesh could compensate for Pakistan’s loss, if the pricing is good. Their requirement is 7-7.4 mn bales every year; it is one of the top three importers in the world. However, an exporter from South India says, “Bangladesh will never front-load, since they are close to India. Exports there usually are gradual through the year.” The Cotton Advisory Board estimates export at five mn bales in this cotton year, a 15 per cent drop. Edelweiss’ estimate is 5.8-5.9 mn bales, as against 6.9 mn last year.

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