In a surprise move Monday, India, the world’s second-largest exporter of cotton, announced the suspension of new registrations of cotton exports effective from April 19th 2010 until further notice. The announcement from the Office of the Textile Commissioner here impacts new registrations of raw cotton, cotton waste, and combed or carded cotton. The ministry indicated it took this action in response to the steep increase in local cotton prices, which comes on the heels of an announcement just last week of a new 3% tax on raw cotton and cotton waste exports. Ironically, while this action may ease supply constraints in India, it is likely to exacerbate the situation for foreign buyers, particularly in China and Pakistan. In turn, by effectively removing a sizable portion of exportable supplies from the world balance sheet, this is likely to boost world price as importers and exporters alike scramble to shift fiber sourcing in response to this news.
While the Office of the Textile Commissioner did not determine the exact volume of cotton likely to be affected by this suspension in new registrations, the tally originally due for shipment just in the remaining months of this marketing year is likely to be sizable. So far this marketing year, an estimated 4.4 million 480-lb bales of Indian cotton have already been shipped through the end of March. With the latest USDA forecast anticipating exports were to have reached 6.1 million bales, this implies that roughly 1.6 million bales—minus bales already registered or shipped in the first three weeks of April—now may not be shipped this marketing year. On balance, we gauge the bales likely to be subject to this suspension in the remaining three months of the marketing year at roughly one million bales.
The impact of this suspension is likely to be felt in several key importing markets across Asia. To begin with, assuming this estimate of one million bales is accurate, this will effectively remove roughly one in eight bales from global exportable supplies in the next three months. In particular, over the October – March time period, China alone imported 2.3 million bales from India, accounting for roughly 56% of season-to-date exports of Indian cotton. What’s more, India’s ten largest export markets are all net importers of cotton, meaning that with this major supplier curtailing shipments in coming months, these buyers will have to turn elsewhere to meet their import needs. At this late point in the marketing year, much of that exportable supply is likely to come from the U.S., dramatically dwindling U.S. exportable supplies and presumably driving price higher.
While we caution against drawing premature conclusions from India’s announcement, the impact of such a suspension certainly could be far-reaching and could drive global cotton prices higher. We will continue to monitor this breaking issue as new issues develop.
No comments:
Post a Comment