India starts selling cotton from inventories

MUMBAI - India has started selling cotton from government-controlled stocks as it tries to protect domestic textile mills from costly imports, but traders said sales have so far been limited because prices have been high.

Indian farmers' cooperative NAFED started selling cotton from its inventory into the domestic market from Wednesday, a statement on its website showed. India's other big cotton stockholder, Cotton Corporation of India (CCI), has so far conducted two auctions for about 45,000 bales, traders said.

India and China, the world's top producers and consumers of cotton, are both selling stocks in an effort to bring down domestic costs. Their sales could add further pressure to global prices after spot levels fell 4 percent in April.

"We have started selling cotton from today, and this will happen on a daily basis. We have displayed the sale quote, taking CCI's price as the benchmark price," said a government source who did not wish to be identified because he is not authorised to talk to the media.

The source said no decision had been taken on the quantity to be released on a daily basis but that a total of 340,000 bales would be offloaded in a staggered manner by NAFED.

The Indian government, through CCI and NAFED, has bought 2.5-3.0 million bales of cotton in the current crop year to September 2013. Total production is around 34 million bales.

COMPETITIVE PRICES?

CCI has started selling cotton through electronic auctions, its website showed, with an invitation for buyers to register. Traders said the corporation has put 45,000 bales up for sale in two e-auctions, out of which just 3,000 bales have been sold.

"Response at the auction was not great because CCI wants to sell cotton above the market price. To offload stocks they should have competitive prices," said Prerana Desai, vice-president of research at brokers Kotak Commodities.

On Wednesday the benchmark domestic spot Shankar-6 variety ended steady at 37,000 rupees per candy of 356 kg each (about 86.8 cents per lb), data from the Cotton Association of India showed. Prices have fallen about 4 percent since end-March.

The most active July cotton on ICE Futures U.S. was broadly flat at 87.16 cents per lb at 1353 GMT.

The CCI is going to conduct its third auction next week for between 20,000 and 25,000 bales, traders said.

Desai said the CCI might lower prices in forthcoming auctions to attract buying.