India, the world’s biggest producer of cotton has nearly halted cotton exports as local prices have rallied due to tight supplies because of drought. The price rise could subsequently push up fabric and clothing prices and put pressure on the margins of garment makers. This has also forced key importers like Bangladesh, Pakistan and Vietnam to turn to other suppliers.
The freeze in Indian export will prompt Brazil, Australia and United States to raise shipments and has pushed global prices to near their highest since August.
Chirag Patel, chief executive officer at Jaydeep Cotton Fibers Pvt. Ltd, a leading exporter said that in last three-four weeks Indian exporters could not sign a deal as cotton is more expensive than Brazilian or Australian supplies.
He further said that the landed cost of Indian cotton for buyers in Pakistan and Bangladesh is at 75 cents to 76 cents per lb compared to around 73 cents for Brazilian cotton.
Pakistan and Bangladesh prefer Indian cotton due to lower freight charges.
Cotton supplies in spot markets have been dwindling even as domestic textile units are ramping up purchases, Patel said.
Local cotton spot market prices have surged 10 percent from a month ago to 38,400 rupees per candy of 356 kg (73.5 cents per lb) due to limited supplies after consecutive droughts cut production. A candy is equivalent to about two Indian bales of 170 kg each.
India may produce about 34.1 million bales of cotton in the 2015/16 season that started on Oct. 1, down from last year’s output of 38.3 million, the Cotton Association of India (CAI) estimates.
So far during the 2015/16 season, India exported around 6.5 million bales of cotton, with Bangladesh and Pakistan accounting for more than half of the total exports, said Dhiren Sheth, president of CAI. In 2014/15 India exported 6 million bales.
In October to April cotton supplies in Indian spot markets fell 12.5 percent from a year ago. The industry failed to judge the impact of drought on the production. Output turned out lower than the initial estimate, said a dealer with a global trading firm.
According to a trader based in Rajkot, Gujarat, the new cotton crop usually begins arriving from late September, but this year as sowing has been held up in key producing states due to delay in the monsoon, supplies would start only from mid-October.
Now textile units are aggressively buying to make sure they have stocks for the next four months.