Worldwide impact of Indian cotton export ban – Special report

07 May '10

7 min read

The deficit will be about 310,000 metric tons before the new crop comes onto the market, the agency said in a report, citing the China National Cotton Reserves Corp. The deficit calculation has taken into consideration the quantity China needs to import and the available global supply, it said. China's economic growth of 11.9 percent in the first quarter is spurring textile consumption while cotton output last year shrank on reduced planting.

The only other alternative country, which can match the volumes imported from India, is the US, but according to experts, it may still not be enough. As per an expert, Chinese consumption may outstrip available supply by 3.5 million tons in the cotton year ending August 31, and supply will remain tight next year.

Demand for cotton is fast recovering as China's cotton yarn output jumped 20 percent in the first quarter as factories increased production on improving exports. The impact of the Indian decision to ban cotton exports was felt in the prices of cotton in the domestic cotton markets. Spot delivery prices were quoted at 17,000 Yuan per ton in Hubei, a gain of about 300 Yuan, within three days, in the time since India's announcement.

Bangladesh imports around four million bales of cotton annually and fills 30 percent of its cotton needs from India transported by land, 60 percent of its annual demand of cotton from Uzbekistan, the world's third-largest cotton exporter. It also buys cotton from Russia and the US totaling to more than $1.5 billion. Supplies have got disrupted through the land route from India, after the export ban was imposed.

The immediate impact of the cotton export ban has been a hike in yarn prices in Bangladesh, which could have a strangulating and chilling effect on exports of knitted and woven clothing, which amounted to $15.56 billion in the fiscal year ending June 2009 and also accounted for 80 percent of the country's export revenues. Bangladesh is considered the most cost-competitive producer of clothing in the world, but that could all change now as cotton prices and in turn yarn prices could also surge.

The Vietnamese textile industry per se, is solely dependent on cotton imports to run their textile mills as cotton production in the country is abysmal and substitute for just 8-10 percent of the raw cotton consumption by the sector in the country, with the rest needed to be imported. Production costs are expected to soar, as the impact of the Indian ban will reflect on global cotton prices, which are expected to rise further.

The only countries which could benefit are the cotton exporting countries like the US, Brazil, Australia, Uzbekistan and the countries in the African continent. The US which is the biggest cotton exporter is the biggest beneficiary of this decision. Orders are flooding into US cotton shippers after India banned exports of the fibre, quickly redrawing trade patterns that recently swung in the Asian cotton giant's favour.

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