India’s Cotton-Export Ban Should Be Lifted, Minister Says

India’s Cotton-Export Ban Should Be Lifted, Minister Says

FMCG SUPPLIER NEWS

Bloomberg - Mar 7th 2012, 08:05

India's farm ministry wants a ban on cotton exports to be revoked as the curbs will hurt farmers in the world’s second-biggest producer, minister Sharad Pawar said. Futures surged for a second day to the highest level in more than two weeks.
 

The ban will lower domestic prices and hurt planting prospects in next crop season, Pawar told reporters in New Delhi today. The ministry has written to Prime Minister Manmohan Singh to rescind the ban announced by the commerce ministry yesterday, he said. The curbs are to prevent depletion of domestic supplies, according to the textiles ministry.

Pawar joins the Cotton Association of India in calling for an end to the ban that may help stem a 57 percent slide in futures in New York in the past year and trigger contract disputes with buyers from China to Bangladesh. Prices surged to a record last year after India restricted shipments of cotton and yarn, boosting costs for Gap Inc. (GPS) and J.C. Penney Co.

“Prices may be supported by expectation that cheap Indian cotton won’t be available in the future,” Dong Shuzhi, a trader at PKU Founder Commodities Co., said by phone from Shanghai.

Shipments Surge

The May-delivery contract jumped as much as 2.2 percent to 94.24 cents a pound today on ICE Futures U.S., the highest price since Feb. 17. Futures surged by the most in nine months yesterday and the exchange boosted margins by 76 percent.

India banned exports after sales surged to nearly 9.4 million bales of 170 kilograms each, more than the surplus of 8.4 million bales estimated by the government. Traders registered to ship 12 million bales and the rush to secure permits with letters of credit being opened between the same buyers and sellers was “indicative of a tendency of hoarding in bonded warehouses abroad,” the textiles ministry said.

A panel of ministers will meet on March 9 to review the ban, supply and demand in the domestic market, Kiran Dhingra, textiles secretary, told reporters in New Delhi. She ruled out a ban on exports of cotton yarn. The textile mills are carrying the lowest cotton inventory in the past decade, Dhingra said.

Bangladesh Textiles

The ban may affect Bangladesh’s textiles industry as it depends on India for supplies, Jahangir Alamin, president of Bangladesh Textile Mills Association, said in a phone interview from Dhaka. “India has always been inconsistent in cotton exports,” he said.

Bangladesh imports 30 percent of its annual cotton needs from India. the country consumes 3.7 million bales of cotton a year, Alamin said.

Production in India will be lower than earlier forecast after diseases cut yields in the states of Maharashtra and Andhra Pradesh, according to the Cotton Advisory Board. The harvest may reach 34.5 million bales of 170 kilograms each in the year that began Oct. 1, against 35.6 million bales estimated on Nov. 15, it said on Jan. 24.

Fewer Plantings

Farmers will be less inclined to plant cotton next year as local prices have slumped after the ban, said Parth Mehta, joint managing director of Bhadresh Trading Corp., an exporter.

“April is the time when the farmers will start planting and if they are getting prices below the government guaranteed levels, which farmer in his right mind will want to sow cotton?” he said. “There is definitely going to be a huge impact on the acreage that is going to go under cotton.”

India’s government buys cotton at guaranteed prices to guard farmers against distress sales in the open market.

Futures on the National Commodity & Derivatives Exchange of India Ltd. in Mumbai plunged 8.5 percent in February, the most since June. Prices fell by the daily limit of 4 percent yesterday and rebounded 1.7 percent to 829 rupees ($16.5) per 20 kilograms at 5:11 p.m. in Mumbai.