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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Select your preferred way to display the comments and click "Save settings" to activate your changes.'s picture

Those Indians sure have firm moral fiber. And now, it's for export!

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. 

Piranhanoia's picture

Chocolate covered cotton.  MM

eaglefalcon's picture

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

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.

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.


good points by the way.


trav7777's picture

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

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.


wee-weed up's picture

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


They start speaking Mandarin. 

wee-weed up's picture

Along with all the rest of us, unfortunately!


Yup, just like everyone else had to learn English. 

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!

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.


Dugald's picture

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

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

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. 

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....

bugs_'s picture

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

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. 

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? :)

Normalcy Bias's picture

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

sitenine's picture

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

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.

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? 


gookempucky's picture

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

Dollar Bill Hiccup's picture

PLA must have its tighty wighties ...

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.

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.

Mr Lennon Hendrix's picture

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

nmewn's picture

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

non_anon's picture

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

jonjon831983's picture

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

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"

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"

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! 

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!






bahaar's picture

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

slewie the pi-rat's picture


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

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.

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


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"...



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.

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.

Gold Dog's picture

Brooks Brothers shirts= Made in the USA!

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


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

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.

Gidas19's picture

What school taught you math?