Suggests huge mopup by traders as cash-strapped textile mills struggle to stock up
Cotton prices in India have remained almost stable despite a temporary halt in shipments and a bumper crop, suggesting a huge mopup by traders as cash-strapped textile mills are still struggling to stock up.
This means many traders had applied for licences for exports without securing supplies first, as prospects of fresh shipments on top of the contracts already registered still remain uncertain, trade and industry executives said on Friday.
The speculation gathered pace amid allegations that a few unscrupulous traders cornered a bulk of export licences after a whopping three million bales were registered for exports between February 23 and March 3. One bale equals 170 kilogram.
An informal group of ministers, headed by finance minister Pranab Mukherjee, will soon consider whether to allow fresh cotton exports in the year through September, a senior government official said, adding the date for the meeting is yet to be decided.
The government on March 12 lifted a controversial ban on the cotton exports a week after imposing it, but it suspended the registration of fresh shipment contracts and also asked traders to revalidate the ones for which registration was completed before the ban was slapped.
Traders had registered contracts for exports of around 13 million bales before the ban, out of which a record 9.5 million bales had been shipped out. The rest were to be re-validated before shipments can take place.
The ban temporarily dragged down prices in key producer Gujarat by 5% to R32,500 a candy, of 356 kilogram each, but the rates again inched up to R33,300 a candy as of Wednesday, according to official data.
?Exporters have ramped up purchases, as they want to ship out cotton as quickly as possible, before the government changes its mind and cracks down again.
That is one of the reasons why prices haven?t really slumped in the past few days despite good crop arrivals,? said a senior executive at a Mumbai-based trading house.
After a slow start since October, cotton arrivals in the domestic market have picked up since February to reach 26.71 million bales as of March 20, up 9.4% from a year earlier, the official data showed.
Average daily arrivals of cotton have also improved this month to more than 150,000 bales, compared with volatile supplies ranging from 20,000 bales to 159,000 bales a year before. The country expects a record crop of 34 million bales in 2011-12, compared with 33.9 million bales a year before.
Demand for the Indian cotton has soared in the past few months with a pick-up in Chinese consumption.
China accounts for around 70% of India?s cotton supplies. India, the world?s second-biggest cotton grower as well as exporter, shipped around eight million bales in the year through September 2011.
Earlier this month, the ban triggered protests by key producing states such as Gujarat and Maharashtra, and Union agriculture minister Sharad Pawar who argued farmers? income would dwindle due to a resultant fall in domestic prices.
However, commerce and textile minister Anand Sharma had defended the ban, saying the country couldn?t afford to import at a higher price later as domestic stockpiles would deplete if unrestricted exports continued. A severe liquidity crunch has forced textile mills to purchase the raw material in smaller lots.
