It is not sure whether the Indian government's new measures, which were softened late last week, will lead to higher prices for cotton yarns and fabrics, as they did when the Indian government made a similar move in April 2010. The government announced on March 5 a new ban on all exports of raw cotton from India, which remains the world's second-largest producer of this raw material, claiming that the nation's reserves are being depleted.
In contrast with its action in 2010, the Indian government made the new regulations applicable also to cotton that has already been registered for export. However, under pressure from several international organizations, the government exempted a few days later the large volumes of cotton that had already been authorized to leave the country. The volume registered for export had jumped to 12 million bales, well above a projected exportable surplus of 8.4 million bales, according to reports.
The drastic export ban announced one week ago had led to a significant increase in the international price of cotton futures and to a drop in the prices negotiated with Indian growers, combined with speculation that cotton crops may move to other more liberalistic countries.
India's producers of cotton yarn, fabrics and clothing had been asking their national government to prevent excessive shipments of raw cotton to China to protect their own business. They claimed that China was in line to receive more than 85 percent of India's cotton exports during India's financial year, which ends in March. At the end of January, China bought some 5 million bales of foreign cotton in one big swoop.
In reality, both China and India have been setting up its own national stockpiles of the raw material to protect local clients and to lower price fluctuations. Reports indicate that China may end up holding one-quarter of the globe's reserves of cotton to avoid a serious shortage that could lead to massive unemployment in the nation's big garment manufacturing industry.
Despite the stockpiling, cotton prices have remained relatively low lately as global production of cotton has been running about 10 percent higher than consumption, partly because of a gradual shift from cotton to polyester and polyester blends due to the recent spike in the price of raw cotton, which reached a peak of $2.14 a pound last spring. It is now worth less than $1 a pound, and experts suggest that this may lead to a drop of 4 percent in cotton farming in the 12-month period ending in July 2012.
