India Cotton Exports May Fall on Higher Local Prices

By Pratik Parija

Nov. 11 (Bloomberg) -- Cotton exports from India, the world's second-biggest supplier, may fall this year as growers withhold overseas sales to benefit from higher domestic prices, fixed by the government.

Exports in the 12 months ending Sept. 30 may be less than 8.5 million bales a year earlier, said Subhash Grover, managing director of state-owned Cotton Corp. of India, the nation's biggest buyer of the commodity.

``There is no parity in prices to sell in the international market,'' Grover said in an interview from Mumbai yesterday. ``Exports are not taking place now.''

India's government, facing an election by May, increased the minimum purchase price by as much as 48 percent in September to protect the incomes of 10 million cotton farmers. Cotton futures traded in New York have fallen 39 percent this year as global consumer spending reduced because banks restricted lending.

Futures closed at 22,597 rupees per candy (356 kilograms), or 60.5 cents a pound, on the Mumbai-based National Commodity & Derivative Exchange Ltd. yesterday. That's 47 percent more than international prices.

``Yarn manufacturers and other users are only buying for hand to mouth consumption,'' Laxmi Narayan Gupta, director of TDN Fibers Ltd., said by telephone from the central city of Indore. ``Traders and investors are not buying now because of the difference between domestic and international prices.''

The government, the biggest buyer of food crops, purchases rice, wheat, oilseeds and cotton at assured prices from farmers, a powerful voting block. The prices are meant to protect growers from distress sales in the open market.

`Major Problem'

The price increase ``has created a major problem for the textile industry'' in India, Shishir Jaipuria, vice chairman Confederation of Indian Textile Industry, which represents 20,000 mills, said last week. He is also managing director of Ginni Filaments Ltd. ``We're not competitive because of higher costs and we will lose our customers in the international market.''

India may export $7.5 billion worth of garments in the in the year ending March, compared with $9 billion a year earlier, R.K. Dalmia, chairman of the trade body said last week. He is also a senior president with Century Textiles & Industries Ltd.

The country's cotton output may increase 2.2 percent to 32.2 million bales in the year to Sept. 30 from 31.5 million bales a year earlier, according to Cotton Advisory Board. An Indian bale weighs 170 kilograms (375 pounds).

Cotton futures for December delivery fell 0.83 cent, or 2 percent, to 41.24 cents a pound on ICE Futures U.S. in New York yesterday. Earlier, the price touched 39.78 cents, the lowest for a most-active contract since June 19, 2002.

Prices tumbled 23 percent in October, the steepest monthly drop since at least April 1996.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net.