Indian Cotton Exporters Cancel Orders, Postpone Shipments After Local Prices Climb

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Indian cotton exporters have cancelled orders for around 25,000 bales (1 Indian bale = 170 kg) and postponed shipments of about 200,000 bales by up to a month after a supply shortage pushed up local prices, according to industry sources.Exporters had signed export contracts at around 75 cents per pound in December and January. Now that local prices have shot up to 84 cents, they could not fulfil the orders, according to exporters based in Mumbai.

These sources also stated that contracts to export nearly 25,000 bales to Pakistan and Bangladesh have been cancelled.

Raw cotton supplies usually peak in India between December and February, pushing down prices. This year, local prices have jumped more than 10% over the past two months, with farmers now delaying cotton sales in expectation of further price rises.

Limited supplies in spot markets have forced some exporters to delay shipments and they are delaying shipments by 15 days to one month, sources said.

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Prices have been hiked by the fallout government’s move to scrap high-value currency notes, which disrupted trading in the cash-oriented market. Traders estimate that farmers sold 15.5 million bales of cotton between October and January, down by nearly 19% from last year’s 19.11 million bales.

Right now Indian cotton is not competitive and export demand is not much, sources indicated. But the move by the world’s biggest cotton producer is likely to help rival suppliers like Brazil, the United States and some African countries boost their exports, even as some Indian textile mills have begun importing cheaper fibre from abroad.

India exported around 2.5 million bales so far during 2016-17, which began on October 1. In 2015-16, India exported 6.9 million bales, but this year exports could fall by 28% to 5 million bales, said another exporter stated.  Pakistan, Bangladesh, China and Vietnam are key buyers of Indian cotton.

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Exports will pick up only if Indian prices come in line with international prices. “If we are not competitive, exports will be limited. It could be even less than 5 million bales,” an exporter said.Cotton traders said that farmers were likely to release stocks if local raw cotton prices rise another 5%, taking them above Rs 6,000 per 100 kg, but the delay could see local exporters miss out to rivals.

At the same time, cotton traders are scaling down production estimates, after the government initially expected good monsoon rains to boost the country’s output in 2016-17 by 3.8% from a year ago to 35.1 million bales.“Production of the fibre could be around 33 million bales. The crop is lower in Gujarat than expected,” a ginner based in Rajkot, Gujarat, said.

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Meanwhile, the rally in local prices has prompted some Indian textile mills to start imports.Textile mills in southern India have contracted cotton for shipments in March and April. For them, imported cotton is nearly 2-4 cents (per pound) cheaper than local supplies, according to a dealer with a global trading firm.

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