Cotton exports begin to slide as premiums jump

Indian cotton exports have begun to slide as local premiums over benchmark US futures have jumped on expectations of lower output at a time when there is strong demand from local textile mills, industry officials said.

The higher premiums sought by India, the world's biggest cotton producer, could force Asian buyers such as Bangladesh, Vietnam and China to increase purchases from other suppliers such as the US, Brazil, Australia and African nations.

"Exports are nonviable. We are selling a small amount to Bangladesh, but other buyers are not purchasing," Vinay Kotak, director at Mumbai-based Kotak Ginning and Pressing Industries Pvt Ltd told Reuters.

Indian cotton is being offered at around 135 cents per lb, cost and freightbasis, to buyers in Bangladesh for January and February shipment, nearly 20 cents over US futures, dealers with global trading firms said. Usually, India charges a premium of 5 to 10 cents/lb over US futures.

Record domestic prices could stifle exports in the 2021-22 marketing year ending on September 30, Kotak said. He predicted India will ship just 4 million bales compared to 7.8 million bales a year ago as buyers switch to rival suppliers.

Indian mills have exported 1.8 million bales so far in the season and are likely to ship around 1 million bales in January and February, dealers said.

A few buyers from Bangladesh are paying higher prices for Indian cotton as they need prompt shipments and want assurance of delivery, said a

Mumbai-based dealer with a global trading firm.

Nearly half of India's cotton exports to Bangladesh are via a land border, making shipments more reliable than from rival suppliers.

Bangladesh also buys cotton from the US, but cotton crop there will become available only after March and there is no guarantee that shipments would land on time as labour shortages caused by the latest wave of Covi-19 could exacerbate congestion at ports, the dealer said.

India's cotton production could fall to 34 million bales in 2021-22 marketing year, down nearly 4 per cent from a year ago as crops in key producing states were damaged by rains during the harvesting season, Kotak said.

The lower output is reflected in spot markets, with daily trading volumes dropping to around 175,000 bales, whereas 250,000 bales would be more usual at this time of year, said a New Delhi dealer with a global trading firm.