A halt in cotton exports by India, the world’s second-biggest shipper, may boost contract disputes after arbitration cases surged to a record last year following the slump in prices from an all-time high, analysts said.
On Monday, India effectively revoked export certificates for as much as 2.6 million bales. The nation banned shipments after sales reached 9.4 million bales in the year that began on Oct. 1 last year, 12 percent more than an estimated surplus.
Cotton surged by the most in nine months on ICE Futures US in New York, and the exchange boosted margins by 76 percent.
Photo: AFP
Last year, the UK-based International Cotton Association got 242 requests for technical arbitration, more than five times the yearly average and double the record in 2008.
From Jan. 1 to the middle of last month, the group received 41 cases, Nicky Simon, a spokeswoman, said in an e-mail last month.
DEFAULTS
More defaults probably will involve “Indian merchants to mills outside of India,” Jordan Lea, chairman of Greenville, South Carolina-based Eastern Trading Co, said in an e-mail.
“I understand that most of the Indian cotton that was sold, but yet unshipped, is owed to China,” he said.
About 12 million bales had been registered for export, Prem Malik, the deputy chairman of Confederation of the Indian Textile Industry, said on Monday.
The government said in a statement that “export against registration certificates already issued” won’t be allowed.
An India bale weighs 170kg. China is the top importer, and the US is the biggest exporter. Jordan is the former president of the American Cotton Shippers Association.
Cotton for May delivery climbed by the exchange limit of US$0.04, or 4.5 percent, to end at US$0.9223 a pound yesterday on ICE, the biggest gain since May 31. The rally continued yesterday as the contract gained as much as 2.2 percent to US$0.9424, before trading at US$0.9315 at 10:51am in Singapore
The price has tumbled 58 percent from a record US$2.197 on March 7 last year.
Glencore International PLC said on Monday that its agricultural-trading unit had a loss of US$8 million in the second half of last year following an “unprecedented cotton market,” compared with profit of US$659 million a year earlier.
CROSSROADS
“The cotton industry is at a crossroads,” International Cotton Association president Antonio Esteve said in a statement on Jan. 10.
“It is easy to succumb to the attraction of short-term gains, but history shows that this will create irreparable damage that will affect the long-term economic sustainability of the cotton supply chain,” Esteve said.
Most of last year’s defaults occurred in Bangladesh, Vietnam, Indonesia, Thailand and China, Bill May, the current president of the Memphis, Tennessee-based US cotton shipping group, said in an e-mail on Feb. 14.
India’s move on Monday sent “foreign buyers, particularly Chinese, scrambling,” Andy Ryan, a senior risk manager at INTL FCStone in Nashville, Tennessee, said on Monday in a report.
“At the end of the day, India has exported more cotton already than we thought they might all year,” Lea said.
CASH DEPOSIT
ICE on Monday said in a statement that the minimum cash deposit for speculative cotton-futures trading would increase by US$1,430 to US$3,300 effective today for a contract of 50,000 pounds (22,680kg).
“Small traders are going to get out,” Derrick Lewis, a trader at ClearTrade Commodities in Chicago, said in a telephone interview.
“With India halting exports, we may have another run-up in the market,” Lewis said.
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