India Bans Cotton Exports - WSJ.com
India is once again pulling the strings in the cotton market.
The world's second-largest producer of the fiber after China unexpectedly announced an immediate ban on cotton exports, sending benchmark futures prices soaring.
Front-month prices on ICE Futures U.S. rose 6%, or 5.25 cents, to settle at 92.71 cents a pound, while the more actively traded May-delivery contract surged by the exchange-permitted daily limit of four cents to settle at 92.23 cents a pound. The front-month contract, for March delivery, was exempt from the limit because it is in the period in which traders state whether they will deliver or accept physical cotton against the contract.
"It is dramatic. It is a game-changer" for cotton merchants, because Indian cotton is less expensive than fiber grown in other countries, said Sharon Johnson, a senior analyst at Penson Futures.
The ban is India's latest effort to balance export revenue against the needs of its textile industry. Last year, the national government had capped cotton exports, but by August it had to remove those restrictions because India's cash-strapped textile mills weren't buying the fiber. It extended the unrestricted exports for the 2011-12 crop year, which began Oct. 1, estimating shipments would total no more than seven million bales.
Instead, exporters have shipped out 9.4 million bales of cotton, and the crop year is more than six months from its end. The Indian government had expected it would have 8.4 million bales available for export based on its projections for domestic demand.
India's cotton-export ban comes amid expectations for a record global crop. Above, cotton dries in India. Monday's ban includes cotton that has been registered with the government for export but which hasn't been shipped yet, the Commerce Ministry said.
"With the export ban, the merchants that had sold that cotton that has not been exported out of India will have to cover elsewhere to fulfill their contracts [and pay] the price difference between the Indian cotton and other growths," said Phil Bogel, vice president of Dallas-based Toyo Cotton Co., a firm that buys and sells cotton but doesn't do business in India.
Still, the extra purchases aren't likely to send global cotton prices to the heights seen last year, when India's export restrictions helped fuel a price spike to a record settlement high of $2.1515 a pound on March 4, 2011.
That rise in prices encouraged farmers from Texas to Xinjiang to plant more of the fiber, which, according to the U.S. Department of Agriculture, has resulted in record global cotton production of 123 million bales for the 12 months ending this July 31.
The cushion of supplies against a backdrop of weak demand tied to economic uncertainty may counter the limited supplies from India, analysts said. "In the short term, it's a big deal, but there's still enough cotton out there," said Chris Kramedjian, an analyst at brokerage INTL FCStone.
Jefferies & Co., a global investment bank, said India's ban has the potential to be revised, and global supply is slightly higher than last year, while demand is slightly lower.
"While near-term cotton prices are likely to spike, long-term supply and demand seems to suggest that $1 cotton is most likely to prevail rather than last year's peak of $2," Jefferies said in a note.
—Karen Talley in New York contributed to this article.
Write to Debiprasad Nayak at
debi.nayak@dowjones.com
![[ICOTTON]](http://si.wsj.net/public/resources/images/MI-BN846_ICOTTO_NS_20120305184506.jpg)
