The Rupp Report: Cotton Traffic Jam In Asia

For weeks, the Rupp Report has been following a kind of cotton war, mainly in Asian countries.
After Pakistan’s restriction on cotton, it’s now its neighbor India: For almost a month, India’s
Ministry of Textiles imposed an export stop on Indian cotton and cotton waste. India’s textile
industry was concerned about its own cotton supply and had requested this measure. An export tax of
3 percent had already been put on cotton exports for some time beforehand. According to the Indian
Export regulations, cotton exports have to be registered at the Ministry of Textiles, and only
registered amounts may be exported.

India — Second-largest Cotton Producer

India is the second-largest cotton producer worldwide. According to International Cotton
Advisory Committee (ICAC) projections for the current season, India will produce 5.1 million metric
tons (mt), an increase of 3.5 percent compared with the previous season. Indian cotton consumption
is estimated for the first time to reach 4.15 million mt, exceeding the previous season by 7.4
percent. In 2007-08, with a 1.53 million mt total, export volume was three times the volume in
2008/09 of 0.52 million mt.

According to the Bremen Cotton Exchange’s cotton report, the Indian government has now
decided to impose an embargo on the registration of export contracts prior to the shipment of raw
cotton, cotton waste and cotton carded/combed from April 19, 2010. Therefore, India for the time
being is not exporting any cotton.

Bangladesh In Deep Trouble

After a big shift of textile production to Bangladesh, that country now is having serious
problems because of the shortage of cotton. On average, Bangladesh is exporting cotton products
valued at more than $15 billion. These exports are now jeopardized because the country’s cotton
industry depends heavily on Indian cotton, with 30 percent of processed cotton originating in
India. This ban also imposes another rather socioeconomic problem: more than one million handloom
weavers also depend on cotton. If the situation doesn’t improve in a short time, they also will be
in trouble.

Pro-rata Shipments Only

However, the Indian textile commissioner will reconfirm Indian export contracts registered
before April 19. Shipments of this cotton will be allowed at monthly pro-rata limits. Although the
exact volume of permitted shipments was not given, this measure aims to preserve domestic

The organization of international cotton associations, the Committee for International
Cooperation Between Cotton Associations, in letters sent to the responsible Indian authorities,
protested against this measure on behalf of its members, pointing out the potentially extensive
consequences. India must be well aware of this situation, which not only will jeopardize its
position as a leading cotton exporter, but may also expose its own cotton industry to the threat of
counteractive measures.

High Rank Protests

The Bremen Cotton Exchange asked the German Federal Ministry of Economics and Technology to
forward the issue to the European Commission in Brussels, too. The expert departments are
discussing further steps. The German Industrial Association for Finishing, Yarns, Fabrics and
Technical Textiles pointed out that India could endanger the planned free trade agreement between
the EU and India by punishing its long-time and reputable trade partners. To date, India has not
issued an official response. Also within the trade, the fulfillment of contracts has not been
reported. Furthermore, the Indian example might lead to further defaults on contracts by other
cotton-producing countries, which eventually would lead to global problems. From the yarn segment,
several violations of contracts already have been reported.

Export Ban Means High Cotton Prices

The Bremen cotton report had estimated Indian sales for the current season at 1.25 million mt
up to now. The high level of cotton prices was stimulated by the Indian export ban. The Cotlook A
price index exceeded 90 cents per pound (cents/lb) and reached the highest quotation of 92.30
cents/lb on April 26. In the Cotlook A Index of the five lowest quoted current crops for prompt
shipment, Indian cotton has been replaced by California Arizona cotton. In the future, Indian
cotton could be considered as risky, which might affect further price development for Indian
shipments. The last page of this story is not yet written.

May 18, 2010