Chaos prevailed in cotton trade on Monday after the Government banned raw cotton exports with immediate effect, catching shippers, industry and growers by surprise.

In a notification issued, surprisingly early in the morning, the Directorate General of Foreign Trade said even exports of cotton for which registration certificates have been issued will not be allowed.

The ban follows registration of over 12.5 million bales (of 170 kg each) of cotton for exports. A Government statement in the evening said the ban was imposed due to higher than anticipated exports and fears of a tendency to hoard cotton in bonded warehouses abroad.

With 9.4 million bales (mb) exported so far, the Centre anticipated over 10 mb exports by the month-end leaving meagre stocks here.

“During the same time last year, mills had stocks of 5 mb. Now, they hardly have 2.5 mb,” said an official source.

The ban left the market with no buyers. In Rajkot, the Shankar-6 variety, mainly in demand for exports, was quoted at Rs 33,000-33,100 for a candy of 356 kg against Rs 34,800-35,000 during the weekend. Domestic futures market crashed by the maximum permissible limit of four per cent.

Cotton prices on ICE U.S. gained over four per cent at 92.23 cents a pound.

“Prices will increase in global markets because India is the second largest exporter,” said Mr D.K. Nair, Secretary-General, Confederation of Indian Textiles Industry.

“There were no takers even at Rs 32,500 in the domestic market,” said a trading source.

“It will take two-three days for the market to digest this and bidding could be at Rs 32,500,” said Mr Anand Poppat, General Secretary of the Saurashtra Cotton Ginners Association. “We think mills could wait till prices drop to Rs 30,000,” he said.

Last week, the huge registration by exporters figured at a meeting of Government officials with the textile industry. The industry representatives told the officials that since they were facing recession, exports could be allowed without any curbs.

“We also wrote to the Government saying there was no case for its intervention in the cotton market,” said Mr Nair.

“That is only one section of the user industry. We had to consider the situation of handloom and powerloom sectors,” said the official source.

With restructuring of textile industry on cards, it is only a matter of time before demand for cotton rises, said the source.

“We know prices may fall. Once prices drop to the minimum support level, the Cotton Corporation of India will step in. We have got ready a war chest in such an eventuality,” said the official.

Cotton production this season ending September is projected to be a record 34.5 million bales against 32.5 million bales last year.

(With inputs from our Rajkot Correspondent)

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