By DEBIPRASAD NAYAK

India is once again pulling the strings in the cotton market.

The world's second-largest producer of the fiber after China unexpectedly
announced an immediate ban on cotton exports, sending benchmark futures
prices soaring.

Front-month prices on ICE Futures U.S. rose 6%, or 5.25 cents, to settle
at 92.71 cents a pound, while the more actively traded May-delivery
contract surged by the exchange-permitted daily limit of four cents to
settle at 92.23 cents a pound. The front-month contract, for March
delivery, was exempt from the limit because it is in the period in which
traders state whether they will deliver or accept physical cotton against
the contract.

"It is dramatic. It is a game-changer" for cotton merchants, because
Indian cotton is less expensive than fiber grown in other countries, said
Sharon Johnson, a senior analyst at Penson Futures.

The ban is India's latest effort to balance export revenue against the
needs of its textile industry. Last year, the national government had
capped cotton exports, but by August it had to remove those restrictions
because India's cash-strapped textile mills weren't buying the fiber. It
extended the unrestricted exports for the 2011-12 crop year, which began
Oct. 1, estimating shipments would total no more than seven million bales.

Instead, exporters have shipped out 9.4 million bales of cotton, and the
crop year is more than six months from its end. The Indian government had
expected it would have 8.4 million bales available for export based on its
projections for domestic demand.

Monday's ban includes cotton that has been registered with the government
for export but which hasn't been shipped yet, the Commerce Ministry said.

"With the export ban, the merchants that had sold that cotton that has not
been exported out of India will have to cover elsewhere to fulfill their
contracts [and pay] the price difference between the Indian cotton and
other growths," said Phil Bogel, vice president of Dallas-based Toyo
Cotton Co., a firm that buys and sells cotton but doesn't do business in
India.

Still, the extra purchases aren't likely to send global cotton prices to
the heights seen last year, when India's export restrictions helped fuel a
price spike to a record settlement high of $2.1515 a pound on March 4,
2011.

That rise in prices encouraged farmers from Texas to Xinjiang to plant
more of the fiber, which, according to the U.S. Department of Agriculture,
has resulted in record global cotton production of 123 million bales for
the 12 months ending this July 31.

The cushion of supplies against a backdrop of weak demand tied to economic
uncertainty may counter the limited supplies from India, analysts said.
"In the short term, it's a big deal, but there's still enough cotton out
there," said Chris Kramedjian, an analyst at brokerage INTL FCStone.

Jefferies & Co., a global investment bank, said India's ban has the
potential to be revised, and global supply is slightly higher than last
year, while demand is slightly lower.

"While near-term cotton prices are likely to spike, long-term supply and
demand seems to suggest that $1 cotton is most likely to prevail rather
than last year's peak of $2," Jefferies said in a note.