Cotton exports drop on thin supply pushing prices higher

Due to tight supplies because of drought

Cotton exports from India, the world's biggest producer, have nearly halted as local prices have rallied because of tight supplies thanks to the drought, forcing key importers like Bangladesh, Pakistan and Vietnam to turn to other suppliers. The freeze in Indian export will prompt Brazil, Australia and United States to raise shipments and has pushed global prices to near their highest since August.

The price rise could subsequently push up fabric and clothing prices and put pressure on the margins of garment makers.

“In last three-four weeks Indian exporters could not sign a deal. Our cotton is more expensive than Brazilian or Australian supplies,” said Chirag Patel, chief executive officer at Jaydeep Cotton Fibers Pvt. Ltd, a leading exporter.

The landed cost of Indian cotton for buyers in Pakistan and Bangladesh is at 75 cents to 76 cents per lb compared to around 73 cents for Brazilian cotton, he said.

Pakistan and Bangladesh prefer Indian cotton due to lower freight charges.

Local cotton spot market prices have surged 10 percent from a month ago to 38,400 rupees per candy of 356 kg (73.5 cents per lb) due to limited supplies after consecutive droughts cut production. A candy is equivalent to about two Indian bales of 170 kg each.

India may produce about 34.1 million bales of cotton in the 2015/16 season that started on Oct. 1, down from last year's output of 38.3 million, the Cotton Association of India (CAI) estimates.

India has exported around 6.5 million bales of cotton so far during the 2015/16 season, with Bangladesh and Pakistan accounting for more than half of the total exports, said Dhiren Sheth, president of CAI. In 2014/15 India exported 6 million bales.

Cotton supplies in spot markets have been dwindling even as domestic textile units are ramping up purchases, Patel said.

In October to April cotton supplies in Indian spot markets fell 12.5 percent from a year ago.

"The industry failed to judge the impact of drought on the production. Output turned out lower than the initial estimate," said a dealer with a global trading firm.

"Now textile units are aggressively buying to make sure they have stocks for the next four months."

The new cotton crop starts arriving from late September, but this year supplies could start from mid-October as sowing has been held up in key producing states because of a delay in the monsoon rains, said a trader based in Rajkot, Gujarat.