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Cotton enjoys benefits of trade war

Author: Ravi Shankar Pandey /Wednesday, August 8, 2018/Categories: Commodities

Cotton enjoys benefits of trade war

The ongoing trade war between the US and China, the two largest economies in the world, has brought cheers to Indian cotton growers, who are enjoying a good realisation over their cultivation cost.

Cotton prices have breached expectations of industry experts and are ruling at a multi-year high of Rs 24,000 per bale at the domestic trading exchange. The rally in cotton prices could be attributed to better export prospects in the upcoming season amid tight supply. The Indian cotton industry, which witnessed bleak export of raw cotton between 2014 and 2017, is now set to export about 70 lakh bales this year due to a sharp rise in buying from Chinese millers.

China is the largest cotton importer in the world, which buys premium quality cotton from US, India, Brazil and Australia. It has recently increased its import quota of 80,000 tonnes for the upcoming season which may lead to a rise in overall cotton import in the country by 30 per cent in 2018-19. With the ongoing trade war, China has already imposed 25 per cent tariff on the cotton imported from the US. It may now turn to India to fulfil its needs.

China has been the largest importer of Indian cotton in the last 10 years accounting for more than 40 per cent of the total fibre export. In the last four years, China’s import pace had slowed due to shrinking inventory levels amid above-normal production. As per data released by the USDA, cotton inventory in China has dropped by 13 per cent in the last four years and is pegged at 355 lakh bales. Cotton production in China is also estimated to be lower by 1 per cent in 2018-19 which could lead to higher imports. Meanwhile, cotton exports from India have increased by 5 per cent CAGR in the last four year and are expected to improve further due to better demand outlook.

Apart from high demand from China, the record weakness in the Indian currency could be another factor which may boost overall exports from India, including cotton.

The author is a fundamental analyst at Karvy Comtrade

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