Market factors and change in policy to push cotton exports in India

India is expected to become the world’s largest cotton exporter this year, but cotton exports are expected to see a decline to around 5 million (480 lb) bales in 2014-15, almost 47% from the previous year as it has been hit by import restrictions in China, the world’s largest importer. This has also led to a decline in prices in India as well.

Cotton prices may have bottomed out but a weakening rupee and arrival of better quality crop likely to improve prospects.
Exporters can look forward to market stabilization and an improvement in exports in the coming few months due to market factors and changes in policy.

The recent policy changes are expected to encourage exports. Last week, the Directorate General of Foreign Trade (DGFT) exempted both raw cotton and cotton yarn from registration processes. This is expected to help exports and also fuel demand for raw cotton in India.

Moreover, the rupee has been on a decline in recent weeks, weakening from around 61.5 per USD in November to current levels of around 63.7 per USD. This will also make Indian cotton competitive in the international market.

According to sources associated with the cotton sector demand is picking up in the domestic market and the quality of new arrivals are better than the old crop. This, along with a slightly lower projection for cotton crop this year, is likely to push prices higher.

Moreover, China’s Zhejiang Textiles has recently agreed to purchase cotton yarn worth $60 million from India’s SEL Group which is good start.

According to the Cotton Association of India (CAI), average prices of GUJ ICS 105 (29 mm) now stand at around Rs.33,200 per candy (ex-gin).
Current prices are down around 20% from year ago levels, while international prices are down about 35%. However, the worst may be over for cotton exporters.