Raw cotton exports are expected to plummet around 20 per cent in the next crop year, with demand from China fading, as Beijing unwinds a controversial stockpiling scheme.

That would be greater than the nearly six per cent drop touted for this year, with the change in Chinese policy coming on top of rising cotton consumption in India and a spurt in exports of finished yarn, industry officials said.

Cotton markets around the world have been watching closely, as China abandons a stockpiling scheme under, which it has amassed more than 10 million tonnes (mt) of the fibre - around 60 per cent of global cotton inventories.

The policy had driven up import demand by removing cotton from the domestic market and pushing up local prices.

"Cotton exports have been falling year-on-year and we will not be able to export more than 7-7.5 million bales in 2014-15" said M B Lal, managing director of Shail Exports and former chairman of the Cotton Corporation of India. The country's cotton year runs from October to September.

China, the world's largest cotton importer, accounts for more than 60 per cent of total raw cotton exports from India. The rest goes to Bangladesh, Pakistan and Vietnam.

India, the world's no2 producer and exporter of cotton, has shipped a total of around 8.2-8.5 million bales so far in 2013-14, expected to grow to around 9.2-9.5 million bales by September, industry officials said. Due to harvest cycles, the vast majority of exports typically occur in the first half of the Indian crop year.

The nation exported 10.1 million bales in the 2012-13 year, falling from 12.9 million bales the year before.

China in February imported 147,317 tonnes of cotton from India, down 20 per cent from the previous month. Beijing in January announced it would scrap cotton stockpiling, instead trialling direct subsidies for farmers.

"Chinese buyers have significantly reduced their buying from India in the past two months, as they are waiting for more clarity on the cotton policy in their home country," said Rahul Jitendra Shah, managing director of Acme International.

In a bid to speed up stockpile sales, China from the start of this month lowered the state sale floor price.

Meanwhile, consumption of raw cotton by Indian mills has climbed to 25.8 million bales in 2013-14 from 25 million bales a year ago due to rising demand from textile makers as the global economy shows signs of picking up.

"Consumption by cotton in mills is increasing sharply in India, as many new spinning units are coming up to meet rising demand from textile makers," said Arun Kumar Dalal, a cotton trader from Ahmedabad.

"In the next crop year, mills' consumption is expected to touch 30 million bales." In 2011-12, demand from mills totalled 22.3 million bales.

And Indian shipments of yarn, a value-added product used by textile mills, are likely to rise by around 10 per cent in the financial year 2013-14, market participants said, further crimping overseas demand for raw cotton. Some Chinese buyers have stepped up yarn purchases to avoid higher taxes on raw cotton imports.

Source:- business-standard.com