Jürg Rupp, Executive Editor
For weeks, the Rupp Report has been following a kind of cotton war, mainly in Asian countries. After Pakistan's restriction on cotton, it's now its neighbor India: For almost a month, India's Ministry of Textiles imposed an export stop on Indian cotton and cotton waste. India's textile industry was concerned about its own cotton supply and had requested this measure. An export tax of 3 percent had already been put on cotton exports for some time beforehand. According to the Indian Export regulations, cotton exports have to be registered at the Ministry of Textiles, and only registered amounts may be exported.
India -- Second-largest Cotton Producer
India is the second-largest cotton producer worldwide. According to International Cotton Advisory Committee (ICAC) projections for the current season, India will produce 5.1 million metric tons (mt), an increase of 3.5 percent compared with the previous season. Indian cotton consumption is estimated for the first time to reach 4.15 million mt, exceeding the previous season by 7.4 percent. In 2007-08, with a 1.53 million mt total, export volume was three times the volume in 2008/09 of 0.52 million mt.
According to the Bremen Cotton Exchange's cotton report, the Indian government has now decided to impose an embargo on the registration of export contracts prior to the shipment of raw cotton, cotton waste and cotton carded/combed from April 19, 2010. Therefore, India for the time being is not exporting any cotton.
Bangladesh In Deep Trouble
After a big shift of textile production to Bangladesh, that country now is having serious problems because of the shortage of cotton. On average, Bangladesh is exporting cotton products valued at more than $15 billion. These exports are now jeopardized because the country's cotton industry depends heavily on Indian cotton, with 30 percent of processed cotton originating in India. This ban also imposes another rather socioeconomic problem: more than one million handloom weavers also depend on cotton. If the situation doesn't improve in a short time, they also will be in trouble.
Pro-rata Shipments Only
However, the Indian textile commissioner will reconfirm Indian export contracts registered before April 19. Shipments of this cotton will be allowed at monthly pro-rata limits. Although the exact volume of permitted shipments was not given, this measure aims to preserve domestic inventories.
The organization of international cotton associations, the Committee for International Cooperation Between Cotton Associations, in letters sent to the responsible Indian authorities, protested against this measure on behalf of its members, pointing out the potentially extensive consequences. India must be well aware of this situation, which not only will jeopardize its position as a leading cotton exporter, but may also expose its own cotton industry to the threat of counteractive measures.
High Rank Protests
The Bremen Cotton Exchange asked the German Federal Ministry of Economics and Technology to forward the issue to the European Commission in Brussels, too. The expert departments are discussing further steps. The German Industrial Association for Finishing, Yarns, Fabrics and Technical Textiles pointed out that India could endanger the planned free trade agreement between the EU and India by punishing its long-time and reputable trade partners. To date, India has not issued an official response. Also within the trade, the fulfillment of contracts has not been reported. Furthermore, the Indian example might lead to further defaults on contracts by other cotton-producing countries, which eventually would lead to global problems. From the yarn segment, several violations of contracts already have been reported.
Export Ban Means High Cotton Prices
The Bremen cotton report had estimated Indian sales for the current season at 1.25 million mt up to now. The high level of cotton prices was stimulated by the Indian export ban. The Cotlook A price index exceeded 90 cents per pound (cents/lb) and reached the highest quotation of 92.30 cents/lb on April 26. In the Cotlook A Index of the five lowest quoted current crops for prompt shipment, Indian cotton has been replaced by California Arizona cotton. In the future, Indian cotton could be considered as risky, which might affect further price development for Indian shipments. The last page of this story is not yet written.
