India - Cotton Ginners, Weaving Mills Want Government to Step in as Prices Soar

After food, fibre crops may be next on the government’s price scanner in India. There are moves a foot to clamp down on large traders after Indian mills complained of a sharp spike in cotton prices due to speculative hoarding and exports. The finance ministry is in favor of a 5% export tax on cotton. However, the Cabinet Committee on Prices, which met on Monday, has put the decision on hold. Global cotton prices have doubled in the past one year with punters pouring money into ICE futures. Indian cotton is in heavy demand overseas as it is the cheapest available right now. Sensing a good opportunity, most of the world’s largest cotton trading companies has become active in the Indian market. India has produced a record crop of 31 million bales in 2008. But local prices have continued to spiral due to heavy demand from exporters. Though rising prices have meant a very profitable deal for farmers, worried ginners and weaving mills have now asked the government to step in to make sure cotton remains affordable for them.

They have suggested imposing measures to prevent speculative hoarding, which distorts the supply chain and prices, along with registration of export contracts so that cotton trade can be monitored. The CCP, however, took a view that since there is still a surplus in the domestic market, this may not be the right time to impose export restrictions.

The biggest problem for local industry is that cotton prices are no longer being decided only by demand-supply fundamentals. The entry of hedge funds and punters in US cotton futures, as part of the global commodity bull run, has pushed up cotton prices even in Indian spot markets to unforeseen levels.

Source: Yarnsandfibres