* India's cotton exports seen down at 10 mln bales in 2012/13
* China's demand for raw cotton seen weak on higher inventory
* Local supplies to remain tight until fresh arrivals start
By Meenakshi Sharma
MUMBAI, Sept 5 (Reuters) - India's cotton exports are expected to drop by a fifth this year on account of a slump in purchases by top cotton consumer China and higher domestic prices, a Reuters survey of traders and exporters found.
Lower Indian exports this year could provide some respite to soft world cotton prices which have shed nearly 12 percent since mid-August on expectations of higher output in the upcoming season in India, the world's second-biggest cotton producer.
China holds about 60 percent of world cotton stocks in state reserves. A radical plan to ditch its stockpiling programme in favour of subsidies to farmers that could lead to a long-term cut in China's imports has also hurt market sentiment.
Indian exports of the fibre may on average drop by 22 percent to 10 million bales of 170 kg each in the year that ends September 30, five traders and exporters surveyed by Reuters said.
"Overseas demand has come down significantly because local prices have shot up and China is showing no interest in India's cotton at these prices. Also, China has huge inventories," said Ritesh Agrawal, managing director of Wisdom Cotton, an exporter.
Cotton purchases by China from India fell 36 percent in January-July to 810,311 tonnes from the same period of 2012, according to Chinese customs data. Indian industry executives expect China's imports from India to have fallen in August and to remain weak in the foreseeable future.
China is the top cotton export market for India, followed by Bangladesh and Pakistan. India has been China's second-biggest supplier of cotton this year after the United States.
Local Indian cotton prices have risen nearly 16 percent in the past one month due to a spurt in demand for yarn, a value added product, from local millers and exporters who are trying to boost their exports to take advantage of a slide in the rupee currency.
Heavy rains in cotton-cultivating areas have also contributed to worries about tighter supplies. Cotton supplies are expected to remain tight until fresh arrivals start coming into the market in October.
The Indian rupee has dropped 20 percent this year against the dollar.
"A weak rupee helped exporters a lot but a sharp rise in local prices made Indian cotton uncompetitive in the international market," said Arun Kumar Dalal, a trader from Ahmedabad in Gujarat, the top cotton producing state in India.
India could lose out in future deals too as rival supplies from Pakistan and South Africa are available at 86-90 U.S. cents per lb against New Delhi's 93-94 cents per lb, traders and exporters said.
