Cotton exporters await Chinese quota decision

While the Union government has lifted the restriction on cotton export, those intending to do so have many things to factor into such a decision.

Among the most viable export destinations are China, Bangladesh and Pakistan. China is yet to announce its import quota for cotton; it may happen this month. China is also the largest buyer of Indian cotton.

According to Rakesh Rathi, an exporter and president of the North India Cotton Association: “An exporter can earn close to Rs 1,500 to Rs 2,000 a candy (356 kg) at the prevailing price in the international market. But there are many hiccups.”

After the ban lifting announcement, cotton futures on the New York-based ICE Futures dropped 1.9 per cent in two days to 89.5 cents a pound. Inconsistency in the government’s export policy has marred the country’s image as an exporter. “Unlike domestic spinning mills which buy even two weeks before the stock is exhausted, international buyers plan ahead, with three to four months of advance purchase,” said Rathi. “So, we may not get immediate orders. Due to policy flip-flops, global buyers are apprehensive of trading with India.”

Indian cotton is picked up at a discounted price due to the unstable export policy. Some exporters say they have to negotiate at a lower price because they could not develop long-term relations with buyers due to this ad hoc government policy. Dhiren Shah, president of Cotton Association of India, said the industry was hoping this was the final take on exports. “Let free market conditions prevail,” he added. Exporters may have to resort to instruments, such as hedging, to overcome the volatility in the exchange rate, he added.

According to available estimates, ginners, traders and exporters together hold a stock of 3.5 million bales. With 80 per cent of the crop already in the market as of April-end, exports may put the domestic spinning industry in jeopardy. Millers presently lack working capital to stock on supply.

Cotton sowing is likely to be delayed this year, with wheat harvesting stretched as a fallout of the April showers. Hence, the cotton crop of 2012-13 is expected to arrive in mid-October, instead of mid-September. However, the issue of whether or to what extent there will be a shortage is unclear, as exporters are not sure how many buyers would come forward.