Coronavirus prompts India's top cotton trader to stop sales to China

Kotak Commodity Services Pvt., one of India’s top cotton exporters, will stop selling new cargoes to China on concern the spread of coronavirus may force the top buyer of the fiber to close ports and banks.

The Mumbai-based company will look for new buyers of cotton in countries such as Bangladesh, Indonesia, Taiwan and Vietnam to make up for any possible shortfall in sales to China, Vinay Kotak, director of the company, said in an interview by phone on Tuesday.

“Let’s not panic today, but if the virus keeps spreading and is not controlled in the next 10 to 15 days, then it will create a big problem for the cotton industry globally,” he said. “If banks and ports are shut, then it will be a force majeure.”

Sellers in India have already shipped 600,000 to 700,000 bales of 170 kilograms each to Chinese buyers so far this season and of that, about 75% is in transit, he said. Exporters were expecting to ship another 300,000 bales to China by the end of February, but that may not happen if the virus keeps spreading, Kotak said.

Any signs of disruption in cotton shipments to China could pressure prices that had been recovering from three-year lows.

Though the Asian nation is a huge cotton producer, it’s also the world’s biggest importer. It could also tighten supplies in China, where stockpiles have been declining after Beijing levied retaliatory tariffs on the fiber from America, the No. 1 exporter of the commodity.

Nervousness surrounding the novel coronavirus outbreak in China has already impacted a raft of companies. Starbucks Corp. has closed more than half of its coffee shops in mainland China, while Toyota Motor Corp. is halting production in the country. Investors are now waiting to see what damage this will do to corporate earnings.

For India’s cotton optimists, the virus in China isn’t a major concern. The South Asian country’s exports are price competitive and finding new buyers won’t be hard, said Atul Ganatra, president of the Cotton Association of India.

“Our export target is easily achievable as we are still the cheapest in the world,” said Ganatra. India has shipped 2 million bales since the beginning of the marketing year in October and sales may reach 3.5 million bales by the end of March, he said.

The Mumbai company’s move is “bullish for US cotton prices,” said Shawn Hackett, president of Hackett Financial Advisors in Boynton Beach, Florida. “If the Chinese can’t buy from India, they will buy more from the US”

Still, it’s unclear how much buying could come for American supplies.

“Big buying from China could rally the market, but futures have already moved significantly higher in anticipation and the actual buying could become anticlimactic,” said Jack Scoville, a vice president for Price Futures Group in Chicago.

Indian cotton is selling at 39,500 rupees to 40,000 rupees ($561) per candy (785 pounds) compared with the free-on-board price of 46,000 rupees in the US, according to Ganatra of the Indian cotton group.

India’s cotton production may climb to 35.45 million bales in 2019-20, from 31.2 million bales a year earlier, according to the association on Jan. 6. Exports are likely unchanged at 4.2 million bales, it said.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel