MUMBAI (Reuters) - Indian traders have signed contracts to ship 800,000 bales of cotton to China as demand surged from the world’s biggest consumer of the fibre due to a rally in prices in China, industry officials told Reuters.

The exports from the world’s biggest cotton producer will help China in augmenting supplies, but could weigh on global prices.

“Chinese buyers were very active in the market in last few days,” said Atul Ganatra, president of the Cotton Association of India (CAI).

The cotton was sold at around 80 to 81 cents per pound on a cost and freight basis (C&F) to China, for shipments in March and April, he said on the sidelines of a Cotton India conference in Mumbai.

India has already shipped around 600,000 bales to China so far in the 2018/19 marketing year that started on Oct. 1, he said.

The United States, the world’s biggest exporter of the fibre, has cornered the bulk of Chinese imports for at least a decade. But China’s decision to impose a 25 percent import tax on cotton, in retaliation for tariffs enacted by the administration of U.S. President Donald Trump, has allowed India to grab a bigger share of the Chinese market.

“Imports are nearly 10 cents (per lb) cheaper than domestic supplies for Chinese buyers,” said a London-based cotton dealer with a global trading firm.

China has also been buying cotton from Brazil in the last few days due to depleting stocks, he said.

Cotton ending stocks in China are forecast at 6.58 million tonnes in 2018/19, down from 7.43 million tonnes.

BORDER TENSION

India’s cotton sales to neighbouring Pakistan have slowed in the last few days amid rising tensions between the nuclear armed nations, said Mohit Shah, director at Gill& Co., a leading exporter.

“Traders on both sides of the border are waiting for clarity,” Shah said.

Hostilities between the two countries escalated dramatically late last month, after an Indian air strike on what it said was a militant group that carried out a deadly suicide attack in the Pulwama district of Indian-controlled Kashmir on Feb. 14.

A few traders diverted cotton shipments for Pakistan to China due to the uncertainty, and as China was paying around 2 cents per lb more than Pakistan, said CAI’s Ganatra.

Around 100,000 bales of cotton shipments for Pakistan were delayed, but those would be shipped in the next few weeks, said a Mumbai-based dealer with a global trading firm.

Despite good demand from China, India’s cotton exports in 2018/19 could fall 27.5 percent to 5 million bales, the lowest in a decade, due to a drop in production, CAI estimates.

(1 Indian bale = 170 kg)