(Reuters) - India will start releasing cotton stocks to domestic mills from Friday, trade and government sources said, joining China as the two biggest consumers move to dampen prices for domestic mills.
The move by the two Asian giants, which are also the top cotton producers, could put further pressure on global prices , which are already languishing close to six-week lows.
"We are going to start selling cotton through electronic auction from Friday, but we haven't decided on the quantity to be sold," said a government official who is directly involved in the decision but is not authorised to talk to the media.
The Indian government, through the Cotton Corporation of India (CCI) and farmers' cooperative NAFED, has bought 2.5-3.0 million bales of cotton in the current crop year to September 2013.
One industry source said the CCI was likely to auction a total 250,000 bales of cotton. A government source said just 25,000 bales would be offered on April 26.
"The CCI has got the clearance to sell 250,000 bales but the mode of offloading would depend entirely on them. They could offload in installments," said the textile industry source.
Both India and China bought domestic production to guarantee returns for their farmers, but the move has backfired, squeezing profits for textile mills even though domestic prices have not climbed as fast as global values.
In India, local prices have gained 9.55 percent since January as New York cotton futures rose 12 percent.
China, which holds nearly 60 percent of global cotton stockpiles, will allow its textiles mills to buy up to 8 months of consumption.
India exports cotton at the beginning of the season around September but turns to imports as the domestic harvest wanes.
Its raw cotton exports, which hit a record in 2011/12, are expected to fall 37.2 percent to 8.1 million bales in the crop year to September, reflecting lower imports by China, which is its biggest customer.
India's production should be 34 million bales in the current crop year, against demand of about 28 million bales.
