Indian companies apprehend that they would have to pay compensation to buyers of yarn and fabrics because the prices were negotiated at the contract prices of imported cotton in view.
Although the reason cited by the shippers is that the crop has been adversely affected due to weather conditions, Indian textile companies allege that the real reason for cancellation of existing contracts is the substantial increase in global prices of extra long staple cotton after the contracts were entered into. The companies based in textile hubs Coimbatore and Ludhiana which make high count yarn import extra long staple cotton mainly from the US and the EU. Imports of Egyptian Giza cotton by high count yarn makers are pegged at about 2 lakh bales (lb) a year.
India has been the biggest importer of Egyptian cotton for the last several years. With the elimination of textile quotas by the US and EU, the scope for imports of long and extra long staple cottons has increased. ?he proposal (of Egyptian shippers) is fraught with serious repercussions (for the domestic industry) and hence should be dropped,?according to the confederation of Indian textile industry (Citi). Indian textile players feel that the Egyptian cotton traders?move would be a gross violation of the sanctity of contracts.?Various cotton organisations including International Cotton Advisory Committee, Washington, have been harping on upholding the sanctity of contracts. Therefore, unilateral abrogation of contracts by Egyptian shippers would amount to unfair trade practice,?the Citi said.
The Indian industry has threatnened to turn to other countries for sourcing long and extra long staple cotton, after which ?t would be difficult for Egypt to retrieve the market once lost.?
In a letter to the apex body of Egyptian cotton traders, Citi urged them to prevail upon the members to honour the contracts. Total cotton imports this year (October-September) is estimated at 6 lb, as against 12 lb last year.
With the global prices expected to remain firm, exports are estimated to surge to 25 lb this year compared with over 10 lb last year.
