India's ban on raw cotton exports shocks buyers, world cotton market

The periodical cotton report of Pakistan Cotton Ginners' Association shows seedcotton arrivals equivalent to 14.379 million local bales as on 1st March 2012 and cotton disposal as 13.46 million bales leaving an unsold stock of about one million bales.
This cotton arrival is the highest in the history of Pakistan although some half a millions bales may be added in next couple of fortnights to make it final around 15.0 million bales for 2011-12 season. Sindh produced 29.75 percent less while Punjab produced 51.87 percent more than same period last year. On the whole increase of cotton production over last year is 25 percent.
The main reason for record high production in Punjab is widely sown Bt cotton seed which performed well and we may expect similar performance also in next season. In Punjab, there are better prospects for increasing per hectare field yield which would ultimately add to the profit of the growers and to the strength of the economy by making some 2.0 to 2.5 million bales available surplus for export after meeting our domestic requirements.
Sowing of Bt cottonseed in Sindh has already shown better performance in increasing per unit yield in last many seasons. Some European countries, being ultimate users of cotton textiles are raising their voice against promotion of Genetically Modified (GM ) technology being inorganic and are promoting use of organic agriculture produces on ground of environmental and health hazards.
The European countries also raised their voice against use of child labour generally engaged on cotton picking in CIS countries and threatened to boycott import of CIS cotton. As a matter of fact, the consumer societies are very strong in the west and play their effective role in the service of their members.
In the last week, lint cotton prices remained under selling pressure in local market and were down to Rs 5,300 per 37.324 Kg ex-gin (KCA Sport Rate) on reports of about 25 percent more cotton arrivals up to 29th February 2012. The mills report slow demand of yarn but it is now picking up.
Our mills have procured 12.462 million bales and in this season cotton import will be equal to one million local bales. Thus, mills total procurement of the season from local as well import markets would be around 14.0 million local weight bales. On the 5th March 2012, the Director General of Foreign Trade under Ministry of Commerce, Government of India issued notification No 102(RE-2010)/2009-14 which immediately prohibited the export sales of its raw cotton till further orders and also said that the cotton shipments against registration certificates already issued will not be allowed.
One report says that even cotton shipments under transitional arrangements to destinations which had not crossed Indian territorial limits have been stopped. This is a very shocking news for the buyers of Indian cotton. Readers may be knowing that last year also India suspended its cotton shipments to which international cotton fraternity raised their voice against their action mentioning it as unlawful, against contractual obligations and international trade norms. Last year this ban was put when 5.3 million were shipped but this time India has physically shipped some 8.5 million bales against heard export sales of about 12.5 - 13.0 million bales.
The Cotton Advisory Board of India is reported to have revised down ward India's cotton production estimates for 2011-12 season to 33.5 million 170-Kg bales against earlier estimates of 35.5 million bales. India has total domestic cotton consumption of 26.0 million bales. Thus total disposal of cotton now came to 34.5 million local bales (8.5 million bales shipments + 26.0 million bales domestic consumption) which goes beyond total crop of 33.5 million bales in this season. Thus, India had no option but to ban further cotton shipments against pending export sales of over 4.0 million bales.
There are rumours that Indian exporters have got registered some fake export bargains visualising the situation. To discourage the registration of fake bargains, the Government of India should impose the condition of Contract Performance Guarantee equal to 2 percent of the value of shipments. The Chief Minister of Gujarat State Nurender Modi has made protest to the Prime Minister of India against this ban on cotton shipments saying that cotton growers of his state Gujarat will be badly affected.
The abrupt severe action of the Indian Government has shocked cotton world and the cotton importers especially of Bangladesh who would be at great loss on denial of cotton shipments and some of the mills may close down due to drying up of their cotton stocks. Seed-cotton prices in India are likely to fall which is detrimental to the interests of the growers and lint prices would also go down benefiting the spinners and other textile manufacturing sectors.
This is a very serious matter as to why export registration crossed the level of target so widely - about 40 to 50 percent. The concerned persons responsible for the monitoring of export registration should be taken to task. This is the second consecutive year the Indian Government has banned cotton exports and denied the foreign buyers of their cotton shipments in contravention of international Rules and Regulation and also of the WTO rules.
US cotton has almost been sold out. Out of 15.7 million 480-lb bales crop, disposal is around 15.0 million bales (Export commitments 11.5 + 3.5 million bales for domestic consumption) and only 0.7 bales are available for export. US would like to increase its beginning stocks for next season beyond 3.0 million bales against 2.6 million bales this year.
This season, the spinners avoided building larger cotton inventories on their bad experience of last year. Now, cotton is also available in good quantity from CIS, Australia, Brazil, Argentine and South African countries which jointly may be around 10.0 million bales, alone CIS at 6.5 million bales.
The mills buyers will have to pay higher price and wait for longer time to get cotton shipments from these countries. China won the game as she has purchased some 12-13 million bales mainly from US and India to stock as State Reserves. The Euro-zone crisis has been wisely tackled by the prominent members of EU-27, World Bank, IMF and other financial institutions which have jumped some US Dollars 1.3 trillions into its financial market to save the skin of some 800 banks which were at the verge of bankruptcy.
The Euro-crisis may be subsided for some time but unless real long terms corrective measures were not taken, the situation may go towards deterioration in next quarter or so. The world cotton situation would remain puzzled for some time till some new channels are sourced for supply of raw cotton to spinning industries of Asian countries which were going slow in cotton procurement and some on hand to mouth basis. The prices of cotton may appreciate gearing up yarn, cloth and other textile prices in coming months.