Cotton exports at a standstill

Exporters face huge losses, owing to a sharp decline in international prices

Cotton exports from India have come to a standstill, as prices of the commodity here are higher than abroad.

When global prices started declining in June, Indian entities had exported cotton to their associates in China, with an aim to store the commodity in that country and sell it when prices rose. However, as prices saw a continuous fall, these exporters have now come under huge financial stress. India is the second-largest exporter of cotton, after the US.

In the past three months, international prices of cotton have fallen 25 per cent to 68 cents a pound. During the same period, the price declined six per cent to Rs 11,100 a quintal (for the Shankar-6 variety) in India. As a result, Chinese importers can secure cotton of a better quality and at a lower price from other countries. Demand for Indian cotton has also fallen because Chinese authorities have asked mills in that country to import only 20 per cent of their requirements, over and above the annual import quota of 850 tonnes.

As of now, the unsold cotton already sent to China by Indian entities is lying at warehouses in Chinese ports. Also, demand from Chinese mills has shifted in favour of the long-staple, finer quality from Brazil. Bringing the cotton sent to China back will not be beneficial because that will include additional freight costs and local prices, too, are low.

An exporter said some consignments had been brought back to Indian ports, adding exporters would have to decide about the remaining quantity.

Most exporters aren’t in a position to pay ginners for the cotton bought from them. Trade & industry bodies and exporters suggest losses to ginners and exporters run to several hundred crores.

Initially, Indian exporters had thought owing to the El Niño weather phenomenon, the cotton crop might be hit and, therefore, prices might rise. However, that hasn’t been the case.

So far this cotton year, India has exported 11.5 million bales, compared with 11.4 million bales in the previous cotton year. It is estimated at the beginning of the next season, export will fall 35-40 per cent.

In Vietnam and Bangladesh, several mills have bought Indian cotton to convert it into yarn and export to China. However, as yarn imports by China have also fallen, cotton exporters in India face a double whammy---now, other countries importing cotton to manufacture yarn and sell to China have also cut imports.