Cotton Costs in China, Pakistan to Rise on Delay in India Sales, Olam Says
A delay in starting cotton exports from India, the second-biggest supplier, may lift spot prices in China, Bangladesh and Pakistan as buyers rush to secure supplies to meet immediate needs, according to Olam International Ltd.
Shipments will begin Nov. 1, Rita Menon, secretary in the textiles ministry, said in New Delhi yesterday. That’s a month later than expected by exporters.
“The hit to October commitments will force buyers to cover their needs from wherever they can,” said Unupom Kausik, head of the cotton business at Olam Agro India Ltd., one of the top traders of the commodity in the country.
Cotton futures yesterday extended a rally to a 15-year high on mounting concern that supplies will lag behind demand. China, the biggest consumer, plans to auction an extra 400,000 metric tons from state reserves to meet demand and Pakistan, the third- biggest user, may buy 2.8 million bales this year after floods ruined crops, Farm Minister Nazar Muhammad Gondal said yesterday.
“International prices are going up because of a structural supply-demand mismatch,” Kausik said in a telephone interview. “The difference between spot prices and New York futures will widen” because of delayed supplies from India, he said.
Indian textile mills had demanded a halt in registration of contracts in the December quarter to augment domestic supply and sought a tax of 10,000 rupees ($223) a ton to deter exports. A duty may be imposed in the middle of October, Menon said.
“The Indian textile industry wanted to reserve the initial arrival for themselves and that pressure has played significantly behind this delay,” said Kausik.
Traders may have contracted to ship about 1.5 million to 2 million bales of 170 kilograms each in the three months ending December, Kausik said. An estimate on how much cotton has been committed for exports next month isn’t immediately available, he said, echoing a view by Dhiren Sheth, president of the Cotton Association of India. The delay may lead to disputes between buyers and sellers from the nation, Sheth said.
“People entered into contracts which are not likely to be met now and this will affect the long-term credibility of origin of supplies,” Kausik said. “There will be some heartburn and sourness between between buyers and sellers.”
India halted exports in April to cool domestic prices and bolster supplies, and then introduced a new licensing system for shipments a month later. The curbs would end for the crop year starting Oct. 1 amid forecasts for a record harvest, A.B. Joshi, the textiles commissioner, said in an interview on July 1.
Shipments have been limited to 5.5 million bales and the cap will be reviewed in the middle of December, Farm Minister Sharad Pawar said yesterday.
Output may top 34.5 million bales, higher than the 32.55 million bales forecast by the state-run Cotton Advisory Board last month, Kausik said, citing a survey by Olam. Production this season may be 29.5 million bales, according to the board.
The nation will have enough supplies to ship 7.5 million to 8 million bales in the 2010-11 season, Pawar said.
“In our opinion, India can easily export around 8 million bales next year,” Olam’s Kausik said.
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