Cotton exports have begun to fall as merchants charge big premiums above benchmark US futures in anticipation of weaker output at a time when local textile mills are in high demand, according to industry officials.
Higher premiums demanded by India, the world's largest cotton exporter, may compel Asian consumers such as Bangladesh, Vietnam, and China to boost imports from other suppliers such as the US, Brazil, Australia, and African nations.
"Exports are unprofitable. We're exporting a limited quantity to Bangladesh, but no other customers are interested "Reuters spoke with Vinay Kotak, director of Mumbai-based Kotak Ginning and Pressing Industries.
Cotton is being offered to purchasers in Bangladesh for January and February shipping at roughly 135 cents per lb, cost and freight included, nearly 20 cents more than US futures, according to dealers with global trading businesses. India often charges a premium of 5 to 10 cents per pound above US futures.
Record domestic pricing, according to Kotak, might restrict exports in the 2021-22 marketing year, which ends on September 30. He predicts that India would send only 4 million bales this year, down from 7.8 million bales the previous year, as consumers shift to competing providers.
So far this season, Indian mills have shipped 1.8 million bales and are expected to ship roughly 1 million bales in January and February, according to merchants.
According to a Mumbai-based dealer with a worldwide trading organisation, a few clients from Bangladesh are paying higher costs for Indian cotton because they want rapid shipments and want guarantee of delivery.
Almost 70% of India's cotton exports to Bangladesh are across land borders, making shipments more predictable than from competitors.
Bangladesh also imports cotton from the United States, but the harvest will be ready only after March, and there is no certainty that supplies will arrive on schedule due to labour constraints caused by the newest wave of the Covid-19 outbreak, which might increase port congestion, the dealer said.
Crops Damaged By Rain
Cotton output in India might decrease to 34 million bales in the 2021-22 marketing year, down about 4% from the previous year, since crops in major producing states were damaged by rainfall during the harvesting season, according to Kotak.
The decreased output is mirrored in spot markets, with daily trade volumes down to roughly 175,000 bales, compared to 250,000 bales at this time of year, according to a New Delhi dealer with a multinational trading business.
"Farmers are well aware of the crop's small size. They are gradually releasing supplies in anticipation of a future price increase, "explained the trader.
According to a yarn manufacturer situated in Ahmedabad, Gujarat state, Indian spinning mills are actively buying raw cotton as export demand for yarn is strong.
"Mills are accumulating stockpiles. This year, local consumption may exceed 35 million bales. We might need to import high-quality cotton, " he stated.
Textile factories want to import cotton, but a 10% import tariff imposed by New Delhi last year makes it difficult, according to Kotak.
"Imports will arrive in large quantities if the government removes the import tariff," Kotak said.
