Demonetisation in India — the world’s top producer and second largest exporter of cotton — is “temporarily exacerbating” global supply of the fibre and may prompt importers like Bangladesh to look for alternative sources to stock up immediately, US-based International Cotton Advisory Committee (ICAC) says in its latest report.
“Insufficient supplies of the new notes have led to a currency crisis since much of the Indian economy operates on a cash basis, including payments to farmers. This has led to delays in sales of cotton and shipments to ports, creating shortages in the domestic market as well as reducing supplies to the global market,” the ICAC said. However, it added that the impact will be “limited as the crisis is likely to be resolved in the near future”.
ICAC still maintains its earlier forecast of an annual 34% drop in Indian cotton export volume to 8,25,000 tonnes in the current marketing year that started on October 1. But given the delay in Indian cotton reaching the global market, other exporting countries may gain, according to the report. As such, cotton exports by India have been adversely affected by a slowdown in purchases by China, its top buyer traditionally, in recent months.
The report said: “Bangladesh, which imports from India, may use cotton from other countries for its immediate needs.”
Bangladesh is expected to be the largest importer of cotton for a second straight year in 2016-17 as its mill use continues to grow with imports projected to rise by 1% to 1.4 million tonnes. Exports from the largest supplier, the US, are projected to increase by 29% to 2.6 million tonnes. Similarly, Australia will likely export 21% more from a year before at 750,000 tonnes in 2016-17, thanks to a good harvest there. Exports from Burkina Faso and Mali, the sixth and seventh largest exporters, could rise by 13% to 295,000 tonnes and by 17% to 255,000 tons, respectively.
“Cotton from these origins may replace some of India’s exports if their crops reach the global market sooner,” the report said.
Despite weak global cotton demand and projected higher output in 2016/17, international cotton prices have remained elevated. This is because the unanticipated shortfall in production in 2015 and 2016 led to a 14% decline in both global stocks and in inventory outside of China. Prices have remained high as the bulk of the crop in the current year is reaching the international market only now, the ICAC said.
After declining by 1% in the previous season, world cotton mill use is expected to remain stable at 24.2 million tonnes in 2016/17. Cotton consumption is projected to remain stable in the top three consuming countries: China at 7.4 million tonnes, India at 5.2 million tonnes and Pakistan at 2.3 million tonnes. Higher cotton prices and lower demand for cotton yarn from China have limited growth in cotton mill use in India and Pakistan.
Global cotton output will likely rise 7% to 22.5 million tonnes in 2016-17 from a year before. Though India’s cotton area dropped 8% to just under 11 million hectares, production will likely remain unchanged from 2015-16 at 5.8 million tonnes, thanks to an improved yield, the ICAC said.
Source: The Financial Express
