March 9, 2012

 

India's cotton prices go lower

 

 

India's cotton prices dropped more as pressure grew on Prime Minister Manmohan Singh to withdraw the country's export embargo, amid ideas that the country may have underestimated its yield.

 

Anand Sharma, the Indian commerce minister who imposed the ban from the second-ranked cotton exporting country, on Wednesday (Mar 7) defended his decision, saying it was taken after soaring shipments raised fears of depleting domestic supplies.

 

"We could not countenance a situation where the country which is a major cotton producer is forced to import at much higher prices," Sharma, whose portfolio includes the textiles industry, said.

 

He had ordered an inquiry into the behaviour of "a handful of" merchants who he accused of cartel-like behaviour in exporting large quantities of Indian cotton last month.

 

"We were informed that there has been cornering of huge quantities [of cotton] by a handful of big players who have exported to their own warehouses abroad," Sharma said. "It did cause alarm."

 

The comments came as Singh confirmed, through Twitter, that a group of ministers would "urgently" review the ban, on Friday "after petition by Gujarat and Maharashtra leaders".

 

Narendra Modi, the chief minister of Gujarat, India's second-ranked cotton producing state after Maharashtra, told Singh he was "shocked" by the export ban, which he termed "disastrous" for growers.

 

The comments followed pressure from India's farm minister, Sharad Pawar, on Tuesday for the ban to be repealed, warning of the impact on growers.

 

"This will affect the domestic industry, the farming community and the next year's crop," he said, adding that it had not been demanded by the textile industry.

 

In the market, Luke Mathews at Commonwealth Bank of Australia warned that the pressure has created "widespread scepticism about how long the ban will endure".

 

At Australia & New Zealand Bank, Paul Deane said that Pawar "is a pivotal ally of the ruling Congress party and is reported to hold significant sway in decisions relating to farmers".

 

"As has been seen in sugar in recent years, India's [trade] policy can change quickly."

 

New York cotton for May stood 0.9% lower at US$0.9061 a pound at 10:20 GMT,

 

According to the Indian press, the ban is based on rumour that exporters had a further 3-3.5 million 170 kg bales booked, beyond the 9.4 million bales which the government reported on Monday has been exported so far in 2011-12.

 

With the domestic harvest pegged by some commentators at 33.5 million bales, three million bales below some initial estimates, and domestic consumption at 26 million bales, this would leave the country with a shortfall.

 

However, Deane cautioned over downbeat estimates for the Indian harvest, warning that "the trend in recent years is for an increasing proportion of the crop to be delivered between late February and the end of the season.

 

"This is the risk - that a surge in late season deliveries would mean production is better than currently anticipated and the ban is then reversed."

 

Factors such as a labour shortage which has slowed picking, and hoarding by farmers holding out for better prices, have been seen as slowing harvest progress.