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April 25, 2010 11:18 pm
Orders are flooding into US cotton shippers after India banned exports of the fibre, quickly redrawing trade patterns that recently swung in the Asian giant’s favour.
The ban also damages the competitiveness of textile mills in neighbouring Bangladesh, Pakistan and China, a country whose estimated 9.5m bales of annual imports lead the world.
India has fast become the world’s second-largest cotton exporter after adopting genetically modified strains of the plant. Last week its textile commissioner suspended exports until further notice, citing a “steep increase in [cotton] prices”.
ICE July cotton futures, an international benchmark, rose 5.7 per cent to 86.20 cents a pound in the week, nearing a 15-year settlement high.
For the US, the top exporter, India’s move to placate yarn spinners unhappy with rising global prices is a windfall.
West African growers have also witnessed a buying frenzy, traders say, while exporters Australia and Brazil could pick up fresh demand.
“We’ve had an enormous surge in inquiries. It’s as large as anything you’ve ever seen,” said Jordan Lea, president of Eastern Trading, a cotton shipper in the US state of South Carolina.
Local Indian cotton prices fell after the ban announcement, according to Cotlook.
The surprise halt to shipments, announced days after a new duty on cotton exports, will hurt India’s farmers and “prove detrimental to the reputation of the country as a reliable and continuous supplier of cotton”, the Cotton Association of India said.
The policy shift will also inflict “huge losses” on cotton exporters, the association said. Cargill, the US-based agricultural trader, is among those stuck with Indian cotton.
“The onus is pretty equally on people that have made export commitments and people waiting to receive shipments,” Doug Christie, Cargill Cotton president, told the Financial Times.
China is India’s main cotton customer and its mills will “have to find alternate supplies from America, which will mean they have to pay a higher cost,” said Jagdish Parihar, managing director at commodity trader Olam International in Singapore.
The US, with a moribund domestic textile industry, last year lost a trade dispute with Brazil, which attacked direct subsidies to protect cotton farmers from global price fluctuations as well as a loan guarantee programme designed to bolster credit for international buyers of American cotton.
The ban is not likely to last because India’s cotton crop consistently outpaces domestic demand. Traders expect the memory could linger, however. “It can lead to discounting of Indian cotton prices in the future because it will be perceived as a high-risk cotton,” Mr Parihar said.
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