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G. Gurumurthy

Coimbatore , Nov. 24

INSTANCES of cancellation of forward contracts by the Egyptian cotton shippers entered with Indian importers have come to surface, causing anxiety to the spinning mills which have bought extra long staple (ELS) cotton in the new season.

Already hit by spiralling prices, the Egyptian shippers refusal to part with the contracted supplies of ELS cotton has given a new twist to the current cotton season, which is poised to witness changes in the estimated crop size due to incessant rains in several parts of the country.

Cotton trade circles here said the importers, who have entered forward contracts with ELS cotton shippers, Giza 70, 86 and Giza 88 varieties, had been informed by their agents about their inability to fulfil the contracts.

The reasons reportedly cited by the shippers are that the quantities of the seeded cotton committed by the growers in Egypt could not be procured, as the cotton farmers are reluctant to part with their produce at the prices at which the supplies were originally agreed to . (The prices of ELS Giza cottons surged in the past one month and the price quote of Giza 88 cotton for example which was 115 cents per pound last month is currently ruling at 155 cents).

Giza ELS cotton supplies were contracted by the Indian trade and spinners under the Alexandria Cotton Exporters Association (Alcotexa) by-laws and hence are bound by the its arbitration rules, trade sources say, adding that the cancellation of the cotton contracts has been made by the shippers citing a particular clause of the arbitration rules that provide for cancellation of contract by the buyer and seller by paying 10 per cent of the market value of the supplies in the event of the market price surging by 30 per cent or above.

But the Indian importers claim that this is the first time they come across the existence of such a clause in the Alcotexa rules in three-decade-old trading in Egyptian cotton. The contract cancellation has been invoked only in respect of cases of new season cotton supplies falling due for delivery in October 2006, it is said.

Interestingly, the non performance of the contract for Egyptian cotton imports was brought before the two key functionaries of the Liverpool-based (UK) International Cotton Association (ICA) during their interaction here on Wednesday with the representatives of the spinning industry and the domestic cotton trade.

Members of Southern India Mills Association and the South India Cotton Association, who attended a meeting with the visiting ICA President, Mr Fritz Alexander Grobien, and the former ICA President, Mr Andrew Macdonald, reportedly expressed their anxiety over the non fulfilment of the cotton contract entered with the Egyptians. This meeting assumed importance in the light of the importance given by the ICA over strict adherence to the cotton contracts and in view of the fact that Alcotexa, despite having its own arbitration procedures, is an affiliate-association of the ICA.

Later talking to Business Line, Mr Grobien confirmed about the instances of the Egyptian cotton contract entered with Indian importers being cancelled. Describing the development as "unfortunate", the ICA President, however, maintained that ICA could hardly do anything, as it could not interfere with regional cotton associations, which have chosen to implement their own arbitration rules.

In this particular case, according to Mr Grobien, the cancellation has been sought by invoking a particular clause in the contract rules and both the seller and the buyer at the time of entering the contract should be familiar with all the applicable rules. As for ICA, it was for promoting one common contract/arbitration format applicable for the entire world cotton trade community, said Mr Grobien.

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