Indian curbs on exports may fuel cotton rally.

MUMBAI: Global cotton prices are likely to continue their rally as India, the world's second biggest exporter, restricts exports to soften local prices even though the country is expecting a record crop, industry officials said. India will only allow cotton exports of up to 5.5 million bales (1 Indian bale = 170 kg) in 2010/11 starting Oct 1, Trade Secretary Rahul Khullar said on Saturday.

Last month, India said free exports would be allowed from Oct 1. "By putting restrictions on exports we (India is ) are helping world prices to climb further," said Paresh Valia, an exporter based in Bhavnagar district in western Gujarat state.

New York cotton futures hit a 2-½ year high last week. Cotton was the best performing commodity in August, rising 9.45 percent in value in its biggest monthly gain since February. "Globally, demand is very strong. We are getting good orders from Pakistan and China. There is demand for 10 million Indian bales," Valia said. Indian exporters have been demanding a free hand for exports as floods ravaged crops in neighbouring Pakistan and also affected crops in China, raising demand for the Indian fibre.

About 60 percent of India's current season cotton shipments have gone to China, the biggest consumer. Trade officials expect Pakistan to import about 3 million bales of cotton this year, against average annual imports of 1.5 million to 2 million bales. Global cotton prices could jump 15 percent in 2010/11 as demand recovers and world stocks remain tight, an international farm group said on Wednesday.

"The quantity should have been much higher, but we are happy that they are going to review it shortly," said Dhiren N. Sheth, president of Cotton Association of India, the country's biggest trade body of cotton traders and exporters.

India will review the country's exportable surplus in a meeting scheduled on Nov. 15. "The crop prospects are very good. The surplus (for exports) is 7.5 million bales and more," Sheth said. Cotton output in India is seen at a record 32.5 million bales in 2010/11, compared with 29.5 million bales a year ago as higher prices prompted farmers to cultivate the fibre crop on a record area, Textile Commissioner A B Joshi said last month.

"Domestic prices have risen too quickly. Exports restrictions were required to cool prices. I think (local) prices will soften in coming months," Mohit Gupta, director at Gujarat Ambuja Exports Ltd, told Reuters. In India, the most common Shankar-6 variety was quoted at a record 34,800 rupees per candy (of 356 kg each) on Saturday, up 52 percent compared to 22,900 rupees a year ago, data with Cotton Association of India showed. But, many exporters including Valia, believe domestic cotton price will stay firm until early November, when supply will improve with new crop arrivals.

Source : economictimes.indiatimes.com