* Demand from developed countries hit by high prices

* Cotton touches new highs in Feb, more rises in sight

* Govt capped yarn exports but move not enough - AEPC

By Swati Pandey

MUMBAI, Feb 22 (Reuters) - Soaring cotton prices are likely to crimp India's apparel exports by at least 15 percent in volume terms this year, as they shrivel demand from developed economies that are still limping into recovery, an industry body said.

Buyers are increasingly deferring orders or cutting volume in the hope of some respite in prices, Premal Udani, chairman, Apparel Exports Promotions Council (AEPC).

"Overall raw material is getting expensive and it is going to impact the consumption pattern," he said on Tuesday.

While high prices could mean that apparel exports actually rise in value terms, apparel makers in India are struggling to retain export orders as global cotton prices test unprecedented levels over the last six to seven months, Udani said.

U.S. cotton futures early this month rallied to a record high of $2.0402/lb. [ID:nL3E7DH04J]

"Right now, at these prices, I can tell you nothing is looking bright in the international markets," Rajesh Mandawewala, managing director of Welspun Group (WLSP.BO) told reporters.

"Those economies are still recovering, they are still struggling. So, demand is not as much as it used to be in 2007," Mandawewala said, referring to the U.S. and Europe. He said he saw rising incidences of orders getting postponed.

"It's anyway becoming very, very difficult, at current prices, to make exports happen and make profits. In 2011/12 also export increase will come from prices, not volumes," he added.

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Graphic on cotton price surge: r.reuters.com/ret24r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

In India, the world's second biggest producer and exporter of the fibre, prices of the most common Shankar-6 variety hit a record high of 60,000 rupees per candy of 356 kg early this month. The price has more than doubled in the past year.

Cotton prices are unlikely to fall sharply from current levels as deliveries at local markets, known as arrivals, are indicating production will be less than projected, D.K. Nair, secretary general at the Confederation of Indian Textile Industries, told Reuters.

The Cotton Advisory Board in its January estimate said India was likely to harvest a record 32.9 million bales of cotton in 2010/11, up 11.5 percent on a year ago.

But arrivals till Feb. 20 in the 2010/11 season rose just 5.2 percent to 22.2 million bales from a year ago, the state-run Cotton Corp of India (CCI) said on Monday. [ID:nBMB012502]

The Indian cotton year runs from October to September.

GOVERNMENT BOOST

The government has put a cap on exports of cotton yarn for the current fiscal year in an attempt to make the key raw material accessible to local apparel makers.

Though the move has helped the industry to some extent, Udani said it was not enough and called for a cap on exports to ensure supplies met domestic demand.

"Our resources are limited and consumption is increasing. We have no problems with exports but only the exportable surplus should go," he said. "There is hardly any cotton now."

AEPC, which represents 8,000 garment exporters across India, estimates apparel exports will rise 6 percent to $11 billion in value terms this financial year and by another 10 percent in 2011/12.

However, textile makers such as Raymond (RYMD.BO), Mandhana Industries (MAND.BO) and SKNL (SKMK.BO) have flagged concerns on margins due to rising cotton prices.

"There is pressure on margins. If raw material prices hit the roof like this, there will be pressure," Shreyas Joshi, president of Raymond Apparel Ltd, told Reuters last week. [ID:nSGE71G07B]

"We have not been able to even gauge where this rise is going to stop but we certainly know we have to get into some kind of a compensatory mode to arrest dip in margins," he added.

AEPC expects Chinese products to become more expensive because of rising labour costs while availability continues to be a concern as rising prices deter suppliers from bulk sales.