Indian mills are increasingly looking to import cotton, as a rise in local prices and a drop in world rates have narrowed the price gap that recently allowed traditional importer India to sell cotton abroad.
In the past two weeks, India has bought about 20,000 bales of Egyptian and Brazilian cotton, traders said. Several other mills are considering importing cotton, they said.
One bale weighs 170 kg.
India, the world's third-largest cotton producing nation, sold 600,000 bales in the last four months. Typically an importer, India was able to sell on international markets after a bumper output depressed local prices.
"Until recently, we were procuring cotton from the domestic market but are now looking at imports as prices are quite competitive," said R. K. Baldua, vice president of Gujarat Ambuja Exports Ltd, a leading producer and exporter of cotton yarn.
The company imported its total requirement of about 100,000 bales of cotton in the past year to September 2003. This year, it has bought about 60,000 bales from the local market, Baldua said.
Since October, prices of Indian cotton have been lower than landed prices of imports. Traders said Indian cotton is still cheaper than imports, by about 1,000 rupees ($22) per candy of 356 kg. But the price gap has fallen from more than 4,000 rupees about four months ago, they said.
Indian mills are willing to pay a premium for imports because the quality is generally better and storage costs are lower. Local cotton is normally procured in the peak season of December and January and stored for future needs.
Officials say many more buyers will emerge if the price gap between domestic and imported cotton narrows further.
"Many millers will switch over to imports if the international market becomes more attractive," said an official of a cotton mill, based in the northern state of Punjab.
While Indian prices are expected to rise, traders say moves in international prices will closely watched.
On Tuesday, New York Cotton Exchange futures settled sharply lower on Tuesday, with March down 1.88 cents to end at 73.76 cents a lb.
Prices of Indian varieties of cotton have risen by seven to 21 percent since the beginning of the crop year in October, and traders said prices might rise further in the coming weeks with a seasonal drop in local supply expected.
Cotton supply from the new harvest, which began in October, is likely to fall to about 60,000 bales a day in the next month from about 70,000 bales now and some 90,000 bales two weeks ago.
"The good quality cotton is now in short supply as millers have already cornered superior varieties that arrived in the domestic market," said Manoj Gala, a cotton trader based in the western city of Ahmedabad.
Nearly two-thirds of an estimated 16.5 million bales produced in 2003/04 has already reached the market, traders said. India produced about 13.6 million bales of cotton in the previous year.
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