MUMBAI – A sudden change in global market dynamics is likely to weigh on India's cotton exports this year. If the current trend is any indication, the world's top cotton producer may miss even the recently lowered target of 4.7 mln bales for the year ending September.

India's cotton exports in 2018-19 (Oct-Sep) may fall to a 10-year low of about 4.5 mln bales, down 35% from the previous year, according to trade officials. This is even below the Cotton Association of India's revised estimate of 4.7 mln bales earlier this month. Until March, the association had pegged exports at 5.0 mln bales. The Cotton Advisory Board had set a target of 6.5 mln bales in November, which is impossible to achieve.

A sudden rise in domestic cotton prices to 47,500 rupees a candy (1 candy = 356 kg) from around 41,500 rupees at the beginning of March is proving to be a major hurdle for exports. Prices in India rose sharply due to a likely lower crop this year.

The biggest concern is that Bangladesh, the world's largest importer of cotton and largest export destination for India in recent years, has also been increasingly sourcing cotton from Brazil on quality assurance and lower price.

"India's Shankar-6 variety cotton is quoted at 93-94 cents (a pound), while the same variety of Brazilian cotton is available at 89 cents," said Mehdi Ali, president of Bangladesh Cotton Association.

Ali had earlier told Cogencis that India's share in Bangladesh's cotton imports is likely to fall to 40% in 2019 from 46% a year ago. In 2017, India accounted for 51% of Bangladesh's cotton imports.

In the Oct-Mar period, export deals for 4.2-4.3 mln bales have been signed, of which 3.6-3.8 mln bales have been shipped. Export deals for 300,000-400,000 bales of cotton are under threat, unless renegotiated, as local prices are much higher than contracted prices, which may lead to defaults by exporters. This may leave India's exports short of achieving the revised target set by the Cotton Association of India.

"Currently, exports have come to a standstill as the disparity between domestic and global prices have made overseas sales economically unviable," said Dharmendra Jain, director of Ahmedabad-based DP Cotton. He sees export barely touching the 4.5-mln-bale mark.

Unfavourable currency movement, with the Indian rupee appreciating nearly 3% in March, has made exports from India less attractive to key foreign buyers such as Bangladesh, China and Vietnam. On the other hand, a simultaneous over 3% depreciation in Brazilian real has helped the country to sell more cotton, eating into the share of India in these countries.

Cotton from Brazil is preferred in the international market and by the Bangladesh textile industry not only because it is cheaper, but also free from contamination and better in quality, said Chirag Patel, a trader with Ahmedabad-based Uday Cotton Industries.

With fears of the US-China trade war receding, cotton exports from the US to China and neighbouring countries are gaining ground. This has also weighed on India's exports as domestic cotton is sold at about 4-5 cents premium over the US cotton. This was reflected in the data published by the China Chemical Fiber or CCF Group, which has a close association with the Chinese cotton textile industry.

The CCF Group said India's share in Vietnam's cotton imports had fallen to 19.4% in Jan-Mar from 25.6% in the same quarter a year ago. The US' share in this case has risen to over 60% from 51%. Bangladesh and Vietnam are the top two markets for Indian cotton, followed by China and Pakistan.

Exports to Pakistan have also come to a standstill and are unlikely to resume as mills there are reportedly well-stocked.

Besides the US and Brazil, cotton from African countries is also eating into India's market due to price disparities. And with domestic production seen lower, Indian prices may not fall enough to revive exports.

"The fall in exports could be bigger if shipments of some long-staple premium varieties of cotton, currently being exported to Bangladesh in smaller quantities are halted," said a senior official of India's prominent commodity trading house.

Earlier this month, the Cotton Association of India lowered its 2018-19 crop estimate by a whopping 700,000 bales to 32.1 mln bales, making it the sixth straight cut for the current year.

Thus, mills will be forced to raise prices, which will lead to halt in exports until the supply of new crop begins in Oct-Nov.

The only hope of exports reviving is sufficient rainfall in the Jun-Sep monsoon season and increased imports by China.

Contrary to predictions by prominent global weather agencies and India's Skymet, India Meteorological Department on Monday forecast "near normal" rainfall.

This has brought some correction in farm prices, including cotton. However, a lot depends on the forecasts in the later part of May when the onset and forecasts of regional distribution of rainfall are published.

Last week, China announced 800,000 tn or over 4.5 mln bales of additional import quota for the year. This has raised hopes that the country may turn to India for the fibre crop. However, Indian prices and progress of the US-China trade talks hold the key. 

Published On : 18-04-2019

Source : Cogencis