China’s decision to reduce cotton imports will hurt Indian farmers more. The latest move of the world’s largest cotton buyer will accelerate the fall in prices that are already headed south on excess supplies.
On Monday, China said it would cut import quota to drawdown on inventories, pressurising prices.“This was expected for quite some time now. They had huge surplus and wanted to exhaust them. It will lead to bearishness in global prices. Though this is a cause for concern, there’s no reason for panic,” said Dhiren Seth, President, Cotton Association of India, the apex body for cotton trade.
Domestic prices reacted on China’s announcement. Price of 29 mm cotton which traded around ?39,900 a candy (355.62 kg each) at the beginning of September ended at ?37,400 on Monday. Trade sources said that prices would come down further on harvest pressure.
“Cotton prices have come down by ?3,000 in the past one month. By the time new arrivals come in by end-October or early November, we expect prices to come down further by another ?3,000/candy,” said MB Lal, Managing Director of Shail Exports and former Chairman of Cotton Corporation of India.
Farmers in India have planted a record 12.57 million hectares under cotton this year as a delayed and truant monsoon prompted many of them to take up the cultivation of the fibre crop considered sturdy and relatively drought-resistant. Cotton output is projected to exceed a record four crore bales (of 170 kg each) this year.
India had exported about 1.25 crore bales each in 2013-14, of which about 70-75 per cent was bought by China. “This year our exports will come down to around 75-80 lakh bales,” Lal added. Seth said Indian exporters need to explore markets in other countries such as Bangladesh, Pakistan, Vietnam and the Far East.
Reuters adds: Beijing will only provide import quotas next year for the 894,000 tonnes that it is required to offer at low duties under commitments with the World Trade Organisation, according to Liu Xiaonan, vice-head of the economy and trade department at the National Development and Reform Commission.
Previously, China has offered another type of quota, in addition to the one compliant with the WTO, but Liu said no additional quota would be made available next year.
Non-quota imports are subject to a 40 per cent tariff, so the restricted availability of import quotas will inevitably dampen Chinese demand for foreign cotton.
In the 2013-14 marketing year, traders estimated that Beijing had issued 600,000-800,000 tonnes through the additional quota that will not be available next year.
“Apart from the 894,000 tonnes of import quota required under WTO entry commitments...we will not issue additional import quota, instead guiding domestic textile companies to use more Chinese cotton,” NRDC’s Liu told reporters.
Source:- thehindubusinessline.com
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