India's cotton yarn exports may turn positive this year

Hopes for a revival in India's cotton yarn exports have increased after the Chinese cotton auction began at a 25 per cent higher price than that of the prevailing Indian domestic market.  Since Indian cotton attracts 3.5 per cent duty in China, while Vietnam enjoys a duty-free facility, it is likely that Chinese mills will prefer to import cotton yarn from India.

On the first two days of the Chinese cotton auction, the average price was 15,476 yuan per ton (first day) and 15,332 yuan per ton (second day).

This roughly translates to prices between Rs 51,000 and Rs 56,000 per a candy of 356 kg, which is much higher than the currently prevailing rate of around Rs 42,000 per candy in domestic markets. Meaning, cost-wise, Indian cotton is cheaper compared to the cotton being auctioned by the Chinese government from its reserves.

Another factor in favour of Indian cotton is that the fibre being auctioned by the Chinese government is up to seven-years old, meaning the quality of the auctioned cotton may be or limited quality. Cotton can start to deteriorate and turn yellow when stocked for more than two-three years.

Though India intends to gain because of these factors, it may not translate into more export orders for Indian cotton. It is because of the 3.5 per cent duty being levied by China on import of Indian cotton. On the other hand, China allows zero-duty import of cotton from Vietnam. So, it is very likely that Chinese textile mills would prefer to import Indian cotton yarn.

During April-December 2016, cotton yarn exports from India stood at 872 million kg, down 12 per cent compared to exports of 987 million kg in the corresponding period of the previous year.