Procurement too low, prices too high, for time-bound commitments.
Cotton exporters, who were expecting bumper profits, with a good crop and high prices abroad, are finding themselves unable to procure the quantity they need at the price they were supposed to get.
A serious issue, since they have scheduled export commitments.
The problem is that after mid-October, when cotton started coming into the market, prices have risen sharply — they’re up over 50 per cent in the past three months. Ginners, who convert raw cotton into consumable bales, and who had earlier signed forward deals with the exporters, were unable to procure at a price which made it viable for them.
Result: They’ve been defaulting on commitments. The trapped exporters, who have commitments to waiting importers abroad, have started buying from the open market. Which further strengthens the price. Along with exporters, textile mills are chasing the same cotton.
A source in the Cotton Association of India said a number of default complaints had come and were being arbitrated. An option, he said, was for exporters and ginners to renegotiate the prices.
There is a time problem: permission (the government has to okay all exports) for exporting 5.2 million bales (a bale is 170 kg) were given between October 1 and 10, and the shipments have to be made within a given period. The last such date is December 15.
Price apart, exporters fear the full quota of 5.2 million bales might not be exported by then, as enough cotton would not have been arrived in market till that time.
“Also, the ports can handle only 2.5 million bales per month and in November would see many holidays,” said Shirish Shah, partner, Bhaidas Cursondas & Company, a leading cotton trader and exporter.
So far, 3.75 million bales have arrived in various mandis. The Cotton Corporation of India estimates that with the daily arrivals of 200,000-225,000 bales, arrivals could be 7.5-8 million bales by November-end.
Textile mills will take 2-2.2 million bales each month, and exporters need about a week for making shipments. Given these figures, and the ports’ capacities mentioned earlier, only 3.5-4 million bales are likely to have gone by the December 15 date, said an exporter, instead of the 5.2 million that should have left.
As for the rising crescendo from the textile industry on high prices and the way exports would multiply the problem and, so, should be stopped, exporters say they are not making big money. At the current domestic and international price difference, the margin in exports is just five to eight per cent, they contend.
An option with the government, around or before December 15, is to extend the time given for shipments or allow the incomplete quota. Or, as the textile industry insists, suspend all exports till the demand-supply situation gets clearer.
There is some cheer for exporters in the past two days, in that prices of cotton have come down from Rs 47,000 to Rs 42,500 per candy (356 kg) and if it continues to fall further, ginners might honour their commitments. The forward deals ginners had signed with exporters were at rates between Rs 25,000 and Rs 40,000 per candy.