India Set to Double Cotton Imports This Year as Global Prices Soften.

New Delhi - India—the world’s largest producer of cotton—is on track to double its cotton imports this year due to winged pests and droughts, buying up to 2 million bales at a helpful time for the global cotton industry.

India has imported around 1.5 million bales of cotton so far this year and has already signed contracts for an additional 400,000 bales, traders and a government official said.

“Cotton purchases from abroad will not go beyond 2 million bales,” B. K. Mishra, chairman of the Cotton Corporation of India, said in an interview Wednesday. The government body is responsible for buying cotton from farmers and sells it both domestically and abroad.

India is looking overseas for cotton as its own production is expected to fall by 12% to 33.8 million bales in the year ending Sept. 30, according to India’s Cotton Advisory Board, a body of government officials, growers, traders and exporters.

An Indian bale is about 374 pounds, smaller than the U.S. bale at roughly 500 pounds.

The increased exports and production fall are good news for the global cotton market, as prices had been largely rangebound for the past couple of years due to large stockpiles of cotton in the world’s largest consumer China. In recent months, China has started selling its cotton stockpile, further reducing demand for the world market and keeping pressure on prices.

The China National Cotton Information Center lowered slightly its imports forecast for 2016-17 to 1.05 million metric tons, as the extended reserve auction period pushes back the need for China to return to the world market to source more of its cotton requirements, the Commonwealth Bank of Australia said in a research note. This is bearish for U.S. prices in the short-term, it said.

India’s increased cotton imports will help absorb some of the oversupply, said Georgia Twomey, a commodities analyst at Rabobank based in Sydney.

“The falling expectations of Indian production and late arrival of the monsoon [rainy period] certainly led to some strong Indian activity in the global market,” Ms. Twomey said. But there is an oversupply of cotton in the world market that needs to be absorbed, she said.

The fall in domestic production this year was largely the result of back-to-back years of drought and an outbreak of damaging pests. While India has received a strong amount of rain overall in its monsoon period this year, early rain didn’t come at the time needed by cotton farmers.

“The reason for the reduction in area...during the current year are concerns of whitefly infestation in the north and pink bollworm in central and southern India,” an official at India’s Agriculture Ministry said.

As a result, the Cotton Advisory Board said India’s harvest this year may be its smallest since 2011.

While cotton prices globally have fallen, in India, cotton prices have risen by about 50% since the start of the cotton season on Oct. 1 last year to $320 a bale.

Mills in southern India have found it cheaper to import cotton than buy it from local markets even though India has large stockpiles of the commodity.

The sea-transport cost from Africa to the southern ports is lower than surface-transport cost from the central and western Indian states, making it “alluring for domestic mills to import cotton,” said D. K. Nair, former secretary-general of the Confederation of Indian Textile Industry.

On the ICE Futures U.S. exchange, prices for December delivery climbed to more than 75 cents a pound in early August, but have since retreated to below 71 cents a pound. The U.S. Department of Agriculture’s report for the week ended Aug. 11 said spot prices averaged 72.06 cents a pound, down from 72.75 cents a week earlier, but up from 60.92 cents reported in the corresponding period a year ago.

Source : wsj.com​