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Indian currency crisis impacts global cotton market
Dec '16
The currency crisis in India, marked by insufficient supply of new currency notes post demonetisation of Rs 500 and Rs 1,000 notes, is resulting in reduced supply of cotton to the global market. Since much of Indian economy operates on cash basis, including payments to farmers, the present situation has led to delays in sales and shipments of cotton.

India is the world's largest producer of cotton and also the second largest exporter. The present cash crunch is leading to delays in sales of cotton and is creating shortages in the domestic market as well as reducing supplies to the global market, the International Cotton Advisory Committee (ICAC) said in its latest report.

Analysing the situation, ICAC said other countries may benefit from increased exports in the short term due to the delay in Indian cotton reaching the global market. It predicts Indian cotton exports to fall by 34 per cent to 825,000 tons in 2016-17. However, it adds that the effect of the currency crisis will be limited as it is likely to be resolved in the near future.

“Despite weak global demand for cotton and higher production in 2016-17, international cotton prices have remained elevated, with the Cotlook A Index averaging 79 cents/lb during the first four months of the season. The unanticipated shortfall in production in 2015-16 led to a 14 per cent decline in both world stocks and in stocks outside of China, which pushed prices up at the end of last season,” ICAC said.

Prices have remained high as the bulk of the 2016-17 crop is only just now reaching the international market. In addition, the currency crisis in India is temporarily exacerbating the situation.

Exports from the US are projected to increase by 29 per cent to 2.6 million tons, remaining the world's largest exporter. The sizeable crop anticipated in Australia is likely to cause its exports to increase by 21 per cent to 750,000 tons. Exports from Burkina Faso and Mali, the sixth and seventh largest exporters, are expected to increase by 13 per cent to 295,000 tons and by 17 per cent to 255,000 tons, respectively, as a result of larger crops. According to ICAC, cotton from these origins may replace some of India's exports if their crops reach the global market sooner.

Meanwhile, Bangladesh is expected to be the largest importer of cotton in 2016-17 for the second consecutive season as its mill use continues to grow, with imports expanding by 1 per cent to 1.4 million tons. Bangladesh, which imports from India, may use cotton from other countries for its immediate needs. (RKS)

Fibre2Fashion News Desk – India

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