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Last updated: March 12, 2012 8:28 am
India has said it will not issue any new export registration certificates for cotton, just one day after removing a week-old ban on shipments of the fibre.
The government on Sunday lifted a ban on cotton exports that it had introduced only days ago, after it was strongly criticised by China, the biggest buyer of the fibre, and its own farmers.
On Monday, however, the trade secretary said only the roughly 2.5m bales registered for shipment before the ban was put in place on March 5 would be given the requisite clearance for export. No new export certificates would be issued for at least 10 days, said Rahul Khullar.
Sunday’s reversal of the export ban by the world’s second-largest producer of cotton came as New Delhi tries to balance its relationship with Beijing, the interests of its farmers, and the concerns of its ailing textile industry.
“Keeping in view the facts, the interests of the farmers, interest of the industry, trade, a balanced view has been considered by the Group of Ministers to roll back the ban,” commerce minister Anand Sharma said on Sunday.
Analysts on Monday said India had stopped issuing new certificates in order to handle the backlog of bales, and they expect once that is cleared business as usual will resume.
But the government’s abrupt moves will add further volatility to the commodity after a rollercoaster two years in which prices first spiked from about 75 cents to an all-time high of more than $2 per pound only to crash to $1 per pound.
The price volatility has been so intense that traders have dubbed the fibre the “widow maker”, replacing natural gas, which earned the soubriquet after big bets went wrong in the notoriously volatile commodity in the 2000s.
Cotton prices are now likely to drop further below $1 per pound, analysts said, even if the threat of New Delhi reversing its decision once more could provide some artificial support.
Hussein Allidina, head of commodities research at Morgan Stanley in New York, said in a note to clients that prices could drop to 90 cents per pound due to weak global demand.
“After record global production eased prices from their highs last spring, demand destruction appears to be long-lived as mills that increased their synthetic blends last year are slow to adjust back,” he said.
China is likely to end purchases for its strategic cotton reserve soon, further depressing the market. “The end of Chinese reserve buying will probably reveal a demand vacuum,” he added
Cotton prices have risen this year after India banned exports for the second time in two years.
The April cotton contract on Monday rose as much as 3 per cent to Rs848.50 per 20kg, the highest since March 1, on the National Commodity & Derivatives Exchange of India, as traders reacted to news of the ban’s reversal.
India’s commerce minister instituted the ban with immediate effect on March 5 in an attempt to ensure sufficient supply of cotton for domestic textile companies.
China had aggressively acquired bales over the past year for a government reserve as a way of supporting domestic farm prices and buffering against price volatility.
By late January, China had bought as many as 5m bales of foreign cotton for the reserve which, along with its domestic purchases, made up 15 per cent of global cotton consumption in the current crop year, the US Department of Agriculture estimated.
India said it has already exported almost 9.4m bales of cotton this fiscal year, higher than government targets.
Domestic textile companies have been complaining that they are losing competitiveness versus rivals in Bangladesh and Pakistan because of rising cotton prices in India. The ban was meant to push down cotton prices in the country.
However, the ban enraged the country’s farmers, an important vote bank, forcing Manmohan Singh, prime minister, to demand a review of the ban.
Farmers complained that, due to higher production this year, they were already suffering from lower prices than they had expected and needed to export to recover their domestic losses.
The reversal comes less than a week after the ruling Congress party suffered a crushing defeat in a crucial state election in Uttar Pradesh and ahead of the budget, which is expected to provide several sops to farmers
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