Indian export ban takes cotton to 15-year peak.

Cotton prices hit a fresh 15-year high in early trading on Tuesday after India unexpectedly extended export restrictions on the fibre.

The move by India, the world's second-largest exporter of cotton, reversed promises made by New Delhi not to ban exports just three weeks ago.

In New York, ICE October cotton rose to an intraday high of 93.85 cents per pound, up 3.2% on the day and the highest since October 1995. The most actively traded ICE December contract hit 92.82 cents per pound.

New Delhi said on Monday that it would impose a prohibitive export tax on any cotton exports above 5.5m Indian bales - each of about 170 kg - in a move to slow down overseas sales to ensure low prices for the domestic industry.

The announcement by Rahul Khullar, trade secretary, stunned Indian cotton traders, who had expected unlimited, duty-free cotton exports from October as the country prepares to harvest a record cotton crop in 2010-11. New Delhi promised last month to lift the trade embargo on the fibre it imposed this year.

Global supplies are already tight because of heavy losses in Pakistan after the worst floods in the country's history devastated the crop. Cotton demand has outpaced supply for the past five years on the back of strong demand from China and low production in the US, running down the stocks-to-use ratio, a measure of inventories, to the lowest level since 1993-94, according to the US Department of Agriculture.

Cotton prices have rallied 15 per cent since early August, mostly on the back of the crop losses in Pakistan, traditionally the fourth-largest producer. Pakistan's mills, prized for their yarns and high-quality finished textiles, consume more than domestic farmers typically grow, putting the country among the world's top five importers.

The agriculture attaché at the US embassy in Islamabad last week said that Pakistan could import in 2010-11 almost 70% more cotton than previously expected due to losses in local production. "The significant decrease in domestic cotton production is expected to be bridged through imports from the international market," he said in a report released by the US Agriculture Department.

The US agriculture attaché in Islamabad added that the ongoing floods in Pakistan had "seriously affected the major cotton growing areas" in the Punjab and Sindh provinces. "Preliminary information provided by government and industry contacts estimate that more than 1.1m acres of the standing cotton crop have been damaged", out of total cotton farmland area of about 3m hectares, he said.

Elsewhere in commodities markets, crude oil and base metals posted losses. On the London Metal Exchange, copper for delivery in three months fell 2.6 per cent to USD 7,515 a tonne, while aluminium dropped 3.5 per cent to USD 2,129 a tonne.

Crude oil prices also dropped. Nymex October West Texas Intermediate fell USD 1.44 to USD 73.17 a barrel while ICE October Brent fell 92 cents to USD 75.95 a barrel. Near record high inventories in the US are weighing on the US benchmark, while Brent prices are being somewhat supported by falling production in the North Sea.

Source : moneycontrol.com