The cotton bubble has burst. Prices are half what they were at their peak in March, when they reached about $1,400 for a candy (356 kilograms). Constraints on production capacity among Far East producers have also eased up. As a result the Indian government has decided not to impose any restriction on cotton exports for the coming cotton season, which starts Oct. 1.
In April 2010, the country banned exports of raw cotton in an attempt to keep prices from soaring. It lifted the ban on Nov. 1, but imposed a limit of 5.5 million bales. This cap was raised to 6.5 million in May. This season, exporters must register with the Directorate General of Foreign Trade if they want to ship cotton, but they can send as much as they want.
Next, a large British fashion retailer, has announced that partly because of the lower cotton prices, its own prices won't be going up in the first half of next year. It increased its prices by 7 percent in the six months ended July 31 because of higher cost prices and an increase in the VAT. For the second half of this year, it plans to raise prices by 8 percent, but this figure would have been more like 18 percent if it hadn't worked to ease tightened capacity in the Far East and growing costs for cotton and oil.
Part of Next's solution to the price crisis was to find new supply sources in unexplored regions, ordering more and ordering earlier, and adding new color options for top-selling lines. The retailer has more than 500 stores in the U.K. and Ireland.
The issue of the price of cotton was brought up at the Southern India Mills' Association's (Sima) recent CEO Conference in Coimbatore, bringing together representatives of the textile industry for two days to discuss concerns, trends and competition. B.K. Patodia, the chairman and managing director of GTN Group, reportedly noted that, typically, textile mills keep only 15 to 20 days' worth of stock on hand. However, during the restrictions on exports over the last year, inventories climbed. Now that the ban has been lifted, exporters aren't able to get higher prices for their product. Patodia said that if local mills wanted prices to remain stable, they should buy raw materials in a regular, timely manner.
J. Thulasidharan, the former chairman of Sima, urged the group to introduce the National Fiber Policy as soon as possible to help make sure prices are fair and stable.
The deputy chairman of India's Cotton Textiles Export Promotion Council, Manickam Ramaswami, reported at the Sima conference that the country is expected to have a 40-50 percent share of the global yarn market, and 20-25 percent of the gray cloth market, in the next three years. India's Cotton Advisory Board expects that in the coming year, the cotton industry there will produce 35.5 million bales, with about 7 million of those being exported. India is the second-largest producer and exporter of cotton in the world.
China is working to keep its cotton prices stabilized as well. It recently launched a temporary cotton reserve that should also protect farmers' interests. The country's National Development and Reform Commission announced that as of Sept. 8, the China National Cotton Reserves Corporation would pay $3,101 per ton to go to the reserve. It is hoped that the move will prevent volatility in cotton production resulting from big price fluctuations.
The reserve purchases apply to China's 13 major cotton-producing regions, including the Xinjiang Uygur autonomous region, when spot prices of new cotton go below the $3,101 price.