China protests at India cotton export ban

An Indian worker sorting cotton at Patel Cotton Industries, Ginners and Exporters, in Dhrangadhra, India on December 16, 2011

Story highlights

  • Manmohan Singh, India's prime minister, urgently requested a group of cabinet members to review the ban
  • Cotton traders including Cargill, Noble Group and Glencore suffered big losses after cotton prices fall to less than $1
  • Cotton prices have risen this year after India banned exports for the second time in two years.
China, the biggest consumer of cotton, has lodged a formal protest against India's ban on cotton exports amid signs that India is rethinking the ban that was implemented a few days ago.
Manmohan Singh, India's prime minister, urgently requested a group of cabinet members to review the ban after the country's agriculture minister said that the curbs on the fibre would hurt farmers.
The outcome of the review would be made public today, a statement from the prime minister's office said.
An official in the prime minister's office said cabinet members were likely to lift the ban.
"There is a realistic, high chance that the ban will be lifted," the official told the Financial Times.
The U-turn is, however, not certain as New Delhi balances its relationship with Beijing and the interests of its farmers with the concerns of its powerful textile industry.
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The abrupt policy changes are adding further volatility to the cotton market after two years of sharp swings in prices.
Cotton rose to an all-time high of more than $2 a pound last year amid a shortage in part created by an export ban by India, only to fall afterwards to less than $1 after cotton mills defaulted on contracts.
Cotton traders including Cargill, Noble Group and Glencore suffered big losses as a result.
Cotton prices have risen this year after India banned exports for the second time in two years.
India, the second-largest producer of cotton, instituted the ban with immediate effect on March 5, in a move aimed at ensuring sufficient supply of cotton for domestic textile companies.
India's move came after China had aggressively bought bales over the past year for a government reserve as a way of supporting domestic farm prices and buffering against price volatility.
By late January, China had bought as many as 5m bales of foreign cotton for the reserve which, along with its domestic purchases, made up 15 per cent of global cotton consumption in the current crop year, the US Department of Agriculture estimated.
This week, Sharad Pawar, agriculture minister, wrote to the prime minister the day after the ban demanding that export of the fibre be allowed.
He complained that due to higher production this year, farmers were already suffering from lower prices than they had expected and needed to export to recover their domestic losses.
However, India's commerce ministry, which enforced the ban, said domestic textile companies had been complaining that they were finding it hard to compete with rivals in Bangladesh and Pakistan because of rising cotton prices in India.
The trade regulator's move is expected to push down cotton prices in the country.
Cotton for May delivery was up 0.9 per cent to 90.90 cents a pound on New York's ICE Futures US exchange.
Futures peaked earlier this week at 94 cents.