Risks rising fast in cotton
Indias cotton market is in a race against time. There is an urgency to buy. There is an urgency to ship out cotton. And there is an equal rush within government to increase the quantity that can be exported.
Prices crossed a record Rs 50,000 for a candy this week. At the bottom is greater panic in New York. Traders in New York are willing to pay $1.68 for a pound of cotton in March. But they wish to pay $1.54 for it in July. Thats a 14-cent difference. Converted into rupees, in March, cotton is worth Rs 59,964 per candy on the world market. By July, it fetches Rs 54,970. Goodbye to almost Rs 5,000.
Clearly, bales shipped in March will be more valuable than those shipped later. Exporters allowed to sell 1.9 million bales in January immediately benefit. And the bonanza will become part of folklore if government fattens the goose further. The commerce ministry is ever keen to play fairy godmother. Unfazed by opposition from the textile ministry, the commerce secretary himself is pitching for addition of 1.5 million bales to export quota. As it usually takes a month after the decision for shipments to start, if exporters are to make maximum money, the moment is now or never.
Thats why all eyes are on the meeting of the committee of secretaries next week. If the committee develops cold feet and postpones the decision to March, the groans will be heard all the way to New York.
Meanwhile, commerce has sent spinning mills to the ball. Perhaps thats because it understands so little of the business. Or just a desire to be even handed. Spinners were allowed last week to export yarn made from imported cotton. There is no restriction on quantity. There is no stipulation to only use cotton imported henceforth. Nor is a correlation necessary between the quality of cotton imported and yarn exported.
Sitting on ! the worl ds cheapest cotton, no spinner has the wildest chance of finding Chinese buyers for Indian yarn made from expensive American or Egyptian cotton. It wont even recover the making charges. Even commerce should have found that deal hard to swallow.
The upshot is that mills which routinely import up to 5 lakh bales extra long staple cotton annually for superfine cloth can now use it as an excuse to export yarn made from ordinary desi cotton. Their existing yarn export quota is extra. Cinderella never had it so good.
All this still doesnt explain why 7 million bales (if you add that extra 1.5 million to the original limit of 5.5 mn) should have enough power to pull up the five times larger Indian market of 33 million bales. Its after all the exportable surplus, the cotton India doesnt need. There ought to be plenty left. Surely correction is inevitable.
But for once the tail seems indeed to wag the dog. Between exports and scurry to secure raw material, spinners and weavers too are caught in buying frenzy. Government-owned Cotton Corporation of India alone plans to trade 3 million bales for profit.
Prices crossed a record Rs 50,000 for a candy this week. At the bottom is greater panic in New York. Traders in New York are willing to pay $1.68 for a pound of cotton in March. But they wish to pay $1.54 for it in July. Thats a 14-cent difference. Converted into rupees, in March, cotton is worth Rs 59,964 per candy on the world market. By July, it fetches Rs 54,970. Goodbye to almost Rs 5,000.
Clearly, bales shipped in March will be more valuable than those shipped later. Exporters allowed to sell 1.9 million bales in January immediately benefit. And the bonanza will become part of folklore if government fattens the goose further. The commerce ministry is ever keen to play fairy godmother. Unfazed by opposition from the textile ministry, the commerce secretary himself is pitching for addition of 1.5 million bales to export quota. As it usually takes a month after the decision for shipments to start, if exporters are to make maximum money, the moment is now or never.
Thats why all eyes are on the meeting of the committee of secretaries next week. If the committee develops cold feet and postpones the decision to March, the groans will be heard all the way to New York.
Meanwhile, commerce has sent spinning mills to the ball. Perhaps thats because it understands so little of the business. Or just a desire to be even handed. Spinners were allowed last week to export yarn made from imported cotton. There is no restriction on quantity. There is no stipulation to only use cotton imported henceforth. Nor is a correlation necessary between the quality of cotton imported and yarn exported.
Sitting on ! the worl ds cheapest cotton, no spinner has the wildest chance of finding Chinese buyers for Indian yarn made from expensive American or Egyptian cotton. It wont even recover the making charges. Even commerce should have found that deal hard to swallow.
The upshot is that mills which routinely import up to 5 lakh bales extra long staple cotton annually for superfine cloth can now use it as an excuse to export yarn made from ordinary desi cotton. Their existing yarn export quota is extra. Cinderella never had it so good.
All this still doesnt explain why 7 million bales (if you add that extra 1.5 million to the original limit of 5.5 mn) should have enough power to pull up the five times larger Indian market of 33 million bales. Its after all the exportable surplus, the cotton India doesnt need. There ought to be plenty left. Surely correction is inevitable.
But for once the tail seems indeed to wag the dog. Between exports and scurry to secure raw material, spinners and weavers too are caught in buying frenzy. Government-owned Cotton Corporation of India alone plans to trade 3 million bales for profit.
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