India cotton exports at jeopardy with China unwinding its inventory

India cotton exports at jeopardy with China unwinding its inventory built over the last three years, and support growers through a subsidy programme. Moreover its plans to sell raw cotton cheap in the domestic market to cut down its inventories may further hit exports from India.

As on January 22, about 4.01 lakh tonnes of cotton found their way into the textile mills and garment factories due to cheap selling of raw cotton, according to the Chinese Government’s cotton news website cncotton.com,

Also the massive reserves to offload allocation of import quota by Beijin look uncertain. China may possibly cut the base selling price of 18,000 yuan/tonne (Rs.1.84 lakh) of cotton by about five per cent to spur purchases, according to trade sources. This may reduce the arbitrage advantage offered by Indian imports. Now, Indian raw cotton is available for Chinese mills are at around 12,301 yuan.

Gujarat-based Jaydeep Cotton Fibres, which shipped 40,000 tonnes of raw cotton, about 65 per cent of its exports to China during 2012-13, the company’s CEO, Chirag M Pan said that exports will come down significantly this year, as the Chinese markets are closed for New Year, the exporters are not able to get the indicators on whether more import quotas will be issued. They have been receiving reports about a price cut, but nobody can predict Chinese policy.

According to DL Sharma, Managing Director, Vardhman Yarns and Textiles Ltd, with such high reserves, it is not possible that if China will issue more import quotas. It could cut back on duty-free import quota. The country has a complex “sliding tax” system, where imports above the quota attract duties in the range of 4-40 per cent.

The reason China is doing this is 2011 procurement programme to relieve fears of cotton growers and encourage planting boomeranged. It had set a high floor price of 19,800 yuan a tonne (Rs.2.03 lakh), at least 4,000 yuan higher than the prevailing global average, jacking up prices of domestic cotton yarn and making Indian imports attractive.

The US Department of Agriculture estimates say by March 2014 China will be stuck with more than 58 million tonnes or 60 per cent of the global cotton inventory.