Part II: The Cotton World Waits for Word from India
December 9, 2010 Editor’s note: With stocks at historically low levels, countries across the globe are anxiously waiting to learn whether the Indian government will allow exporters to ship nearly 2.5 million bales of cotton to overseas buyers. That cotton is part of the 5.5 million bales the government had approved for export three months ago; however, the deadline to make the shipments was set at Dec. 15. Due to massive congestion at India’s ports and a crop that could be as much as four to five million bales smaller than originally expected, nearly half of the cotton registered for export won’t be able to meet the shipping deadline, leaving government officials with three choices: Extend the deadline; require exporters to re-register their shipments; or delay all exports for two to three more months. The government will announce this weekend which option it chose. The article below sets the stage for this highly anticipated decision.
Earlier this year, the Indian government decided to allow exports of 5.5 million bales of cotton, but stipulated that the shipments must be made between from Nov. 1 and Dec. 15. The decision was a compromise between the desires of exporting companies, which wanted to be able to take advantage of record-high international prices, and the local textile industry, which wanted to ensure the needs of the local industries were met before cotton was shipped overseas.
Unfortunately, cotton production in Gujarat and Maharashtra–the top two cotton-producing states in the country–was significantly lower than expected due to unseasonal rain. In Gujarat and Andhra, the cotton harvest is spoiled by incessant rain and plagued by high moisture, yellow color and pest attacks. The prior crop estimates of around 35 million bales is becoming irrelevant and might ultimately be closer to 30 million bales.
Due to unexpectedly low arrivals during the last fortnight, domestic demand is strong. Overseas demand for Indian cotton also has increased due to the bad weather and floods that hit cotton crops in China and Pakistan, both leading cotton consumers and producers.
Exporters will remain active in the spot market to fulfill their export obligations. They are struggling to buy the required amount of cotton, and there is severe congestion in all of the Indian ports, making it extremely difficult to handle such a large volume in such a short time.
As a result, Indian cotton exporters are likely to ship only about 50 percent of the 5.5 million bales allowed in the 2010/11 season, which could tighten the global supply situation. If the exporters are given extra time to fulfill their contracts, the prices could rise further.
Recently, a prominent minister said that the government will review the present cap on cotton exports in December, after coming under fire by international textile organizations for its restrictions in cotton exports.
A government panel will meet at the end of this week to decide whether cotton export contracts should be extended beyond the Dec. 15 deadline and if there is scope for expanding the export quota.
The spinning mills and garment manufacturers are lobbying hard with the center to order immediate suspension of cotton exports to ensure availability of raw material for the country’s textile sector. The farmers in India have produced a bumper crop, but the Indian spinning industry is still struggling to cover their required quantities/qualities of cotton because a big chunk of the crop is being exported out of the country.
Will India exit world cotton market for the rest of the season ? There are only two questions worrying the Indian cotton market right now:
- Will exporters get extra time to fulfill their existing contracts?
- Will other exporters get a chance to muscle in?
Look at the timeline. The last date for shipments is Dec. 15. Exporters get three weeks after that to submit their shipping documents to the textile ministry. That takes us to Jan. 5, and no one has a clue what will be the crop size will be at that time.
No matter what industry representatives and lobbyists may want to believe, those who have not been able to fulfill their export contracts are feeling ill-used and want a second chance. Who knew it would rain so much on their parade!
But those who were not able to register any contract at all when the window was open are feeling even more aggrieved. They want these “non-performers” to be booted out, and the unshipped quantities be offered to a different set of exporters.
Meanwhile, all of us in the cotton industry eagerly await the decision of the Indian government. Will India continue to export cotton this season? From my perspective, I’d say: Don’t bet on it.
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