Mumbai: India banned cotton exports with immediate effect on Monday to ensure supplies for domestic mills, boosting global prices some 4.5% as the absence of shipments from the world’s second largest producer might tighten a market facing weak demand.
India has already exported 9.4 million bales, the government said on Monday, higher than the projected export surplus quota of 8.4 million bales New Delhi had set in January, due to strong demand from China. Each bale is 170kg.
This excess led India’s Directorate General of Foreign Trade (DGFT) to ban shipments, to ensure steady supplies for the local textile industry, the country’s largest employer after agriculture and which accounts for some 4% of gross domestic product.
“The decision to ban exports took into account the trend of domestic consumption and depletion of domestic availability,” the government said in a statement.
Within hours of DGFT announcing the ban with immediate effect, a surprised agriculture minister Sharad Pawar told reporters, “I have not heard about it and I am coming to know about it from you.”
Cotton output estimates for the year ending 30 September 2012 were cut to 34 million bales from 34.5 million bales previously, the statement said.
The government said there were also signs of hoarding in bonded warehouses abroad.
Benchmark US May cotton futures climbed over 4.5% on Monday to be limit up and at their highest level since 29 Febuary after the announcement, erasing a fall of 2.13% last week that was driven by a stronger dollar and ample global supplies. Prices in China, India’s top customer and the world’s largest user of the fibre, gained over 1%.
“Export of cotton has been prohibited till further orders,” DGFT said in a statement. “Export against registration certificates already issued will also not be allowed.”
The ban could spur China to buy more cotton from the US, the world’s biggest exporter, and further boost prices. But analysts said plentiful global supplies—and weak demand for textile mills—would put a cap on prices and purchases.
“India’s export ban is going to direct demand back to the US and that is going to help to put a floor on how low prices can go this year,” said Abah Ofon, an analyst at Standard Chartered Bank in Singapore.
But he added,: “US stocks are comfortable and I don’t see this ban adding huge upside pressure on prices. What it will probably do is limit the decline in prices.”
New York-based VIP Commodities, however, said in a weekly summary the US was “almost out of cotton”, and questioned where extra bales could be found.
Reuters’ Niu Shuping in Beijing and Rene Pastor in New York, and PTI contributed to this story.