India bans cotton exports effective immediately

India has banned cotton exports with immediate effect, the Directorate General of Foreign Trade (DGFT) said on Monday, as the world's second-largest exporter of the fibre moves to conserve supplies for local mills.

"Export of cotton has been prohibited till further orders," the DGFT said in a statement. India is the world's second largest producer of cotton and most of its shipments go to China, the world's largest user of the fibre.

"Export against registration certificates already issued will also not be allowed," the notification said.

India had already exported 8.5 million bales, higher than government estimates made in January of 8.4 million bales of 170 kilograms each for the year, on strong demand from China. Over 80 per cent of exports so far have headed to the Asian giant.

Traders in India had signed contracts for nearly 10 million bales in total for export at $1.01-$1.03 per lb, including those already shipped.

Domestic textile makers were worried that such large quantities of exports would cut availability in the domestic market, traders said.

"(It's a) very regretful decision and this will permanently damage the reputation of the country in the international market," said Dhiren N. Sheth, president of the Cotton Association of India. "Prices are likely to touch support price levels very soon."

Cotton prices in the domestic market are hovering around Rs 34,000-35,000 per candy of 356 kg each. They hit a record high of 61,700 rupees per candy in March 2011.

The federal government raised the minimum support price for long staple cotton for 2011/12 season by Rs 300 rupees to Rs 3,300 per 100 kg.

International cotton prices rose with the May cotton contract on ICE up 4.33 per cent to $0.92 per lb.

In January, the state-run Cotton Advisory Board cut its estimates for cotton harvesting in the 2011/12 season ending September 30 to 34.5 million bales of 170 kg each from its earlier projection of 35.6 million bales.

The government may revise that down again because arrivals of cotton at local markets are still lower than expected, said Arunbhai Dalal, a Rajkot-based trader.

Cotton arrivals from the new crop in Indian spot markets have dropped 4.4 per cent in the current cotton year until February 26, to 22.33 million bales, state-run Cotton Corp of India said on Monday on its website.

Copyright @ Thomson Reuters 2012