The spot price of the benchmark Memphis cotton price has jumped more than 5 percent after India, the world’s second-largest producer and exporter of cotton, banned exports of the fibre Tuesday. Still, the impact of this ban on prices is expected to be short-lived, according to a report by Capital Economics.
Going by the report, India accounts for 17 percent of the world exports and has banned all international sales of cotton with immediate effect, including certificates already issued for exports. The government acted to secure supplies for its textile industry as lower domestic cotton production and higher than anticipated exports led to concerns about the stocks available for the domestic consumption and increased cotton prices in the local market.
China’s demand will be strong this marketing year due to its plan to purchase more cotton for its state reserves. Despite a 40 percent increase in China’s import demand, the U.S. Department for Agriculture has estimated that global stockpiles will rise by 30 percent, or 60 million bales, according to Capital Economics. As a result, the additional import demand from China, which is estimated to be 3 million bales, is unlikely to have any significant impact on global stocks.
Muktadir Ur Rahman, commodities economist of Capital Economics, said the upshot is that cotton prices are unlikely to find continued support from India’s decision to ban exports. As a result, the firm is standing by its forecast that the cotton price will fall and the ban will prop up prices only in the short term.