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India Revokes Cotton Export Ban After China Complains: Limit Down Open For "Widowmaker" Trade?

Tyler Durden's picture




 

If there was any confusion as to who calls the shots in the world, the following anecdote should provide some needed clarity. Hint: it is not the US. After last week India announced it would proceed with a Cotton export ban, two days ago China logged "a formal protest against India's ban on cotton exports amid signs that India is rethinking the ban that was implemented a few days ago." As a result hours ago India announced that less than a week after enacting said ban, it is now overturning it. Of course, there is the diplomatic snafu of just why it did, and for India it has to do with "protecting" the interests of its farmers, who "complained that, due to higher production this year, they were already suffering from lower prices than they had expected and needed to export to recover their domestic losses." Of course, the farmers' position was well-known before the ban overturn. What wasn't known is just how vocal China would be, as suddenly it would scramble to find alternative sources as it fills its strategic cotton reserve. Turns out it was quite vocal. And India, unwilling to risk a trade war with the world's biggest economic power, promptly relented. As a result, any and all commodity traders who bought up the widowmaker trade may find themselves staring into a limit down market post open.

From the FT:

The U-turn of the world’s second-largest producer of cotton comes as New Delhi tries to balance its relationship with Beijing, the interests of its farmers, and the concerns of its ailing textile industry.

 

“Keeping in view the facts, the interests of the farmers, interest of the industry, trade, a balanced view has been considered by the Group of Ministers to roll back the ban,” commerce minister Anand Sharma said on Sunday.

 

The abrupt move will add further volatility to the commodity after a rollercoaster two years in which prices first spiked from about 75 cents to an all-time high of more than $2 per pound only to crash to $1 per pound.

 

The wild price swings triggered a spate of contract defaults by farmers and textile mills, and losses for top cotton traders including Noble Group of Hong Kong and Glencore.

 

The price volatility has been so intense that traders have dubbed the fibre the “widow maker”, replacing natural gas, which earned the soubriquet after big bets went wrong in the notoriously volatile commodity in the 2000s.

Ironically, with the ban overturned, cotton prices are now likely set to plunge, especially if China does indeed halt wholesale accumulation.

Cotton prices are now likely to drop further below $1 per pound, analysts said, even if the threat of New Delhi reversing its decision once more could provide some artificial support.

 

Hussein Allidina, head of commodities research at Morgan Stanley in New York, said in a note to clients that prices could drop to 90 cents per pound due to weak global demand.

Then again, it is unclear if China is merely posturing when it says that it will tone down purchasing. If its crude oil import pattern is any indication, China is nowhere near close stockpiling in preparation for something big.

China had aggressively acquired bales over the past year for a government reserve as a way of supporting domestic farm prices and buffering against price volatility.

 

By late January, China had bought as many as 5m bales of foreign cotton for the reserve which, along with its domestic purchases, made up 15 per cent of global cotton consumption in the current crop year, the US Department of Agriculture estimated.

 

India said it has already exported almost 9.4m bales of cotton this fiscal year, higher than government targets.

Either way, China's gain is India's textile industry's loss.

Domestic textile companies have been complaining that they are losing competitiveness versus rivals in Bangladesh and Pakistan because of rising cotton prices in India. The ban was meant to push down cotton prices in the country.

At least this quick flip flop means that trades don't have to worry about the CME hiking margins on cotton. Unlike all other commodities. It also means that China will be delighted to buy up all the cotton at dumping prices that the world's producers care to flood the market with now that prices are set to slide.

 

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Sun, 03/11/2012 - 20:02 | 2245993 CrockettAlmanac.com
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Those Indians sure have firm moral fiber. And now, it's for export!

Sun, 03/11/2012 - 21:12 | 2246120 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

What does his brother say?

Sun, 03/11/2012 - 21:28 | 2246138 tom a taxpayer
tom a taxpayer's picture

His brother says he can no longer afford to feed his family decent foie gras and caviar. He's had to switch to peanut butter and salmon eggs. 

Sun, 03/11/2012 - 21:29 | 2246141 Ahmeexnal
Ahmeexnal's picture

gold for cotton!

Sun, 03/11/2012 - 23:40 | 2246327 Piranhanoia
Piranhanoia's picture

Chocolate covered cotton.  MM

Mon, 03/12/2012 - 02:31 | 2246514 eaglefalcon
eaglefalcon's picture

with those "substitutions", his brother keeps inflation low, the BLS says

Sun, 03/11/2012 - 22:15 | 2246230 Dermasolarapate...
Dermasolarapaterraphatrima's picture

India postures itself as a "democracy" right?

Newsline: Indian Embassy revokes visa of Fukushima survivor

March 7, 2012

 

The Indian government has cancelled a visa granted to Maya Kobayashi, a Fukushima survivor from Japan due to visit the country, said environmental organization Greenpeace India on Wednesday. Kobayashi was scheduled to visit India on the invitation of Greenpeace India to share her experiences with communities who will be affected by the proposed nuclear power plants.

“The fact that the government is going to the extent of cancelling legitimately granted visas clearly shows that they don’t want people from Japan to come to India and share their experience with the people of India. Five survivors from Fukushima visited around a dozen countries and India is the only country to revoke the visa.” said Karuna Raina, Nuclear campaigner for Greenpeace India.

Mon, 03/12/2012 - 00:33 | 2246412 Alexander Higgins
Alexander Higgins's picture

bad link there, you can't see it but there is somewhat space hidding in the link your article a 404.

 

Here is the correct link.

 

http://azizonomics.com/2012/01/29/whos-the-communist-now/

 

good points by the way.

 

Sun, 03/11/2012 - 22:33 | 2246258 trav7777
trav7777's picture

I couldn't see anything in the article that had much to do with China

Sun, 03/11/2012 - 20:06 | 2246002 chinaguy
chinaguy's picture

"unwilling to risk a trade war with the world's biggest economic power."

China, nope, not yet, & probably not ever after the revolution there. A word to the wise & all that.

 

Sun, 03/11/2012 - 20:12 | 2246013 wee-weed up
wee-weed up's picture

What's little Timmy and Uncle Bermonkey gonna do when the ChiComs stop buying our treasuries?

Sun, 03/11/2012 - 20:17 | 2246021 SHEEPFUKKER
SHEEPFUKKER's picture

They start speaking Mandarin. 

Sun, 03/11/2012 - 22:14 | 2246225 wee-weed up
wee-weed up's picture

Along with all the rest of us, unfortunately!

Sun, 03/11/2012 - 23:23 | 2246312 SHEEPFUKKER
SHEEPFUKKER's picture

Yup, just like everyone else had to learn English. 

Sun, 03/11/2012 - 23:55 | 2246348 Troll Magnet
Troll Magnet's picture

bullshit, dude. i live in california and i don't see anyone learning english here. hell, we have to learn spanish just to cope!

Mon, 03/12/2012 - 00:35 | 2246414 Nage42
Nage42's picture

It must be a shocking experience to acknowledge that there is a world out there outside the US... evolve to survive... or don't.

 

Mon, 03/12/2012 - 02:44 | 2246518 Dugald
Dugald's picture

Bow low...bow often....ahh sooo.......

Sun, 03/11/2012 - 20:21 | 2246028 BW
BW's picture
George Bush Sr and Bill Gates were arrested last week for sabotaging the new financial system after being fingered by Timothy Geithner

http://www.dailypaul.com/220144/george-bush-senior-and-bill-gates-were-arrested-last-week-for-sabotaging-the-new-financial-system-after-being-fingered-by

Sun, 03/11/2012 - 22:56 | 2246048 Sandoz
Sandoz's picture

I think the conclusion reached in this article is a stretch. There's certainly no love lost between India and China and no evidence of an impending trade war is given. Besides, why worry about a trade war when you have the threat of a real war to worry about? China is already engaging in a proxy war in border regions and has been showing signs of aggression near Arunachal Pradesh. The Indian Defense Minister recently visited the area, sparking tough talk from Beijing. Goading China is all part of the little game they've been playing recently. 

I suspect that the rationale given (i.e. concerns of the local farming community) was the primary factor here. India, after all, is a democracy and politicians have to answer to the concerns of their constituents. 

Mon, 03/12/2012 - 02:55 | 2246528 Dugald
Dugald's picture

Politicians have to answere to the concerns of their constituents...

Strewth, Stone the crows, starve the flaming Lizards.... What novel idea.....if it catches on polys the world over coud be in real trouble.....second thoughts... not a chance..can't have reality creeping in, gawd; got me hopes up there for a second or two....

Sun, 03/11/2012 - 20:44 | 2246070 bugs_
bugs_'s picture

Well I wouldn't be a bit surprised if there was some wheeling and dealing rather than a flip.

Sun, 03/11/2012 - 21:00 | 2246097 Augustus
Augustus's picture

What a hoot.  China complains about an export ban or price manipulation.

Some may recall the China export ban on the Rare Earth Elements from a year ago.  What kind of market disruption did that bring about worldwide?  The Chinese REE ban cut off about 100% of world supply, not just a part of the world source as in the India ban. 

Sun, 03/11/2012 - 22:08 | 2246211 jonjon831983
jonjon831983's picture

I think they're loosening the REE export quota again this year.  So, they can crash the nascent REE mining in the rest of the world? :)

Sun, 03/11/2012 - 21:03 | 2246104 Normalcy Bias
Normalcy Bias's picture

So much for the hope of India being somewhat of a check to China...

Sun, 03/11/2012 - 21:08 | 2246112 sitenine
sitenine's picture

Since when was India a check to China?  Guess what the 'I' stands for in BRICS.

Sun, 03/11/2012 - 21:04 | 2246107 eigenvalue
eigenvalue's picture

Cotton is mainly traded on ICE NOT CME. Ergo even if CME hikes its margins on cotton, it will have negligible effect on the cotton price.

Sun, 03/11/2012 - 21:13 | 2246111 grunk
grunk's picture

China got its cotton panties in a wad.

By the way, don't USD's have cotton fibers? Then why are they dumping them? 

 

Sun, 03/11/2012 - 21:11 | 2246117 gookempucky
gookempucky's picture

This is how china gets rid of those unwanted US doollars and buy they will--check and mate.

Sun, 03/11/2012 - 21:12 | 2246119 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

PLA must have its tighty wighties ...

Sun, 03/11/2012 - 21:19 | 2246130 Solarman
Solarman's picture

I continue to simply laugh at this China is all powerful worship here on Zero Hedge.  China cannot feed itself, China cannot provide the energy for it's people, China does not have the ability to protect its trade routes, and is also already broke like the rest of us.

 

When push come to shove and China decides to fuck us in the ass, and then we say no problemo, no more trade, I am sure China will simply rise to the top of the world as the strongest nation and everyone will what, buy more from them?  Worldwide trade is collapsing, China is dead man walking.

 

I know everyone here masterbates to Americas downfall, but tough beans, we are the one eye king in the land of the blind, regardless of scewed up we are, the world is in worst shape.

Sun, 03/11/2012 - 21:26 | 2246136 Hugo Chavez
Hugo Chavez's picture

Actually the views expressed here about china are much more reserved and toned down than two years ago. It is easy to criticise wmerican and european problems because they are so visible due to the openness of our societies. However info is gradually getting out about china, a pilluted, poverty stricken locale with a unstable and dangerously unbalqnced economy with a much worse banking and real estate problem thqn either the usa or europe.

And japanese-like demographics. Nothing to fear from china.

Sun, 03/11/2012 - 21:23 | 2246134 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

China the world's superpower?  Somewhere Cdad is spitting up blood.

Sun, 03/11/2012 - 21:36 | 2246150 nmewn
nmewn's picture

China the plantation owner and King Cotton...lovely.

Sun, 03/11/2012 - 21:58 | 2246189 non_anon
non_anon's picture

if India is the armpit of the world, the US is it's bung hole

Sun, 03/11/2012 - 22:09 | 2246212 jonjon831983
jonjon831983's picture

I guess when you're right next door to each other, it's a lot more easy to protest a ban.

Sun, 03/11/2012 - 22:14 | 2246223 GIN
GIN's picture

It is extremely likely that CHINA IS NOT DONE BUYING UP INDIAN COTTON.??If they were not interested in buying more cotton, they would not protested so vigorously at the Indian export ban.

 

Get ready for the "GREAT CHINESE COTTON ROBBERY of 2012"

 

http://www.marketskeptics.com/2010/03/great-grain-robbery-of-1972.html

Sun, 03/11/2012 - 22:14 | 2246224 GIN
GIN's picture

It is extremely likely that CHINA IS NOT DONE BUYING UP INDIAN COTTON.??If they were not interested in buying more cotton, they would not protested so vigorously at the Indian export ban.

 

Get ready for the "GREAT CHINESE COTTON ROBBERY of 2012"

 

http://www.marketskeptics.com/2010/03/great-grain-robbery-of-1972.html

Sun, 03/11/2012 - 22:14 | 2246226 slewie the pi-rat
slewie the pi-rat's picture

L0L!!! last week when india announced it, it wasn't even front-page

but it was strange;  i thought:  this is india's answer to mccain, bibi, and panetta!  just say something completely fuking styooopid and let the swabbies clean it up! 

with cotton for oil, the indians are not lookin real upscale here...  how much cotton can the iranians eat? 

could some of these "communications" be about non-USDollar banking?  india meets china without theMorgue...?   nah...  not quite yet, imo...

did anyone notice how wool did great when they talked the cotton markets to a stand-still, last week? 1380cents/kg  and just in time for the sheep-shearing, too! 

Sun, 03/11/2012 - 22:18 | 2246238 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

But India is where all the future grwoth will come from.  Or was that China?  Wait, no it's Japan.....hmmm, no, it's the US!

USA!

 

USA!!

 

USA!!!

Sun, 03/11/2012 - 22:25 | 2246250 bahaar
bahaar's picture

India exchanges rice and not cotton for oil.    After all India is one of the major rice producer and exporter. 

Sun, 03/11/2012 - 23:30 | 2246305 slewie the pi-rat
slewie the pi-rat's picture

yup!

the cotton stuff is "estimates" and "farmers" and "announcements" right now, even more than the rice business...

Sun, 03/11/2012 - 22:20 | 2246241 bahaar
bahaar's picture

India probably does not want regional trade war.  But that hardly means China is the soon to be super-power calling all the shots.  After all how many Chinese send their children to the Western universities and slash their money into Western banks?  Answer: All middle class parents and all rich Chinese.  And how many Westerners send their children to Chinese universities and slash their money into Chinese banks?  A: Very very few if any. That should tell you something.

Sun, 03/11/2012 - 22:25 | 2246251 mt paul
mt paul's picture

dollars are printed 

on cotton bond paper...

maybe this was Indias attempt 

to stop the fed printing presses ...

 

long green ink

NOT...

Sun, 03/11/2012 - 22:34 | 2246262 Gidas19
Gidas19's picture

Cotton at $1 per pound = $40 shirt in U.S.

Cotton at $2 per pound = $80 shirt in U.S.

If that would happen China's exports would shrink, thats why CHINA "complains"...

 

 

Sun, 03/11/2012 - 23:12 | 2246299 GIN
GIN's picture

Assuming a cotton shirt weighs only 1/3 of a pound, an increase in the cotton price from $1 to $2 only increases the price of the $40 shirt to $40.30.

 

The main impact is on the profitability and competitiveness of the textile industry, not the retail customer.

Sun, 03/11/2012 - 23:53 | 2246345 Gidas19
Gidas19's picture

Major end uses for cotton include wearing apparel, home furnishings, and other industrial uses, my point was that China is very sensitive to cotton prices, take a good look at where your clothes are made GIN.

Mon, 03/12/2012 - 07:28 | 2246720 Gold Dog
Gold Dog's picture

Brooks Brothers shirts= Made in the USA!

Oxford buttondowns last for years, not like that asian shite!

Dog

EDIT- Full disclosure, I am long 7 May CT and am only down 16 grand on the trade...Drop you friggin DX!

Sun, 03/11/2012 - 23:12 | 2246301 GIN
GIN's picture

Assuming a cotton shirt weighs only 1/3 of a pound, an increase in the cotton price from $1 to $2 only increases the price of the $40 shirt to $40.30.

 

The main impact is on the profitability and competitiveness of the textile industry, not the retail customer.

Sun, 03/11/2012 - 23:55 | 2246350 Gidas19
Gidas19's picture

What school taught you math?

Mon, 03/12/2012 - 00:19 | 2246389 GIN
GIN's picture

The price of raw cotton has little to do with the price of the shirt that you might buy at a retail store, unless you shop where cotton clothes are sold "by the pound."

Mon, 03/12/2012 - 00:30 | 2246407 carbonmutant
carbonmutant's picture

Were members of the Central Government shorting cotton?

Mon, 03/12/2012 - 01:27 | 2246469 cobber
cobber's picture

ok - now for some clarifications

1) Cotton is on ICE not CME (although CME trades a shadow contract with little or no OI- it has 3 lots currently). And ICE just increased margins in cotton...

2) China State reserve doesnt buy Indian cotton for reserve purposes - the bales are full of moisture so they deteriorate quicker than US, Australian, Brazil or WAF cotton. China does buy a lot of Indian cotton - but it is all consumed within 6-9 months by textile mills not stored by the government. State owned trader or mills might buy it as well but not for strategic purposes - ie reserve. Maybe to make money and game the market but not to store. (ps they are full of moisture because the Indian Ginning Mills have sprinklers spraying the cotton with water prior to baling and weighing to increase the weight and therefore the price received..)

3) The cotton lint price makes up between 5-10% of the retail price of a shirt. So a double in price increases a typical t-shirt by say $3-5 depending on where you buy your shirts

Mon, 03/12/2012 - 01:38 | 2246483 moonstears
moonstears's picture

It's like every fuckin' day I learn somethin' new here, thanks cobber, I mean it, no sarc!

Mon, 03/12/2012 - 02:05 | 2246501 Sandmann
Sandmann's picture

Why is so much clothing made from plant fibres, even sweaters ? During the American Civil War when Lancashire faced a Union blockade on Confederate exports and cotton was scarce, Yorkshire mills turned to producing light worsted garments for ladies' dresses to replace cotton. Why isn't more wool being used in place of cotton, especially in sweaters ?

Mon, 03/12/2012 - 02:10 | 2246506 css1971
css1971's picture

Wool itches, shrinks and is still expensive in comparison.

Mon, 03/12/2012 - 08:15 | 2246790 Sandmann
Sandmann's picture

You are kidding. It is far better for sweaters yet our shops are full of shapeless cotton sweaters or acrylic. You can buy woollen sweaters online cheaper than acrylic retail. Worsted trousers are better than cotton. Viyella was 55% Merino wool blended with cotton = great shirts.  Wool has better moisture absorption and memory. Cotton is a mess unless regularly ironed. Frankly there is simply too much cotton being used where wool is better and fleeces are cheap

Mon, 03/12/2012 - 10:57 | 2247164 carbonmutant
carbonmutant's picture

XXX posting before coffee.

Mon, 03/12/2012 - 02:08 | 2246504 nah
nah's picture

chinese man

Mon, 03/12/2012 - 03:48 | 2246623 Catullus
Catullus's picture

Yep. Export bans never work. The producers of the commodity threaten to not produce as much and you're screwed. Export bans are only ever lobbied for by certain industries along the supply chain. China's all bark here. India would have dropped it anyway.

Mon, 03/12/2012 - 07:45 | 2246747 AustrianEconomist
AustrianEconomist's picture

Check out the latest from the Capital Research Institute:

Currency Wars – Survival of the Weakest

Do NOT follow this link or you will be banned from the site!