Reliance could be one beneficiary of cotton export ban

While the cotton market globally is shooting up after the Indian government abruptly decided to ban exports, cotton prices in the Indian market have come down.

There was an immediate uproar both in the domestic as well as international markets. Traders, farmers, politicians and industry bodies all rose in unison to protest against this decision. While the government has bought time by saying it will review its decision on Friday, it does not seem to be in a hurry to lift the ban.

The reason for the ban is not clear, though, reports say that it was done to prevent China from hoarding cotton supplies.

[caption id=“attachment_237265” align=“alignleft” width=“380” caption=“Though domestic cotton prices have fallen, Reliance pegs price of its polyesters and polyester intermediates at landed prices of imported products. Reuters”]  [/caption]

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However, not everyone seem to be complaining. Reliance at least will be the last one to do so. The reason is that cotton is a substitute for polyester in the textile market. There is a very strong correlation between cotton prices and synthetic fibre.

Though domestic cotton prices have fallen, Reliance pegs the price of its polyesters and polyester intermediates at the landed prices of imported products. This means Reliance will price its product higher.

In the December quarter, margins for the petrochemical division were lower on account of higher raw material prices and lower prices for the final product. Petrochemicals include polyester and polymers.

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Since the fall of gas production, the company’s bottomline is sensitive to gross refining margins and petrochemical prices. Thus, a rise in petrochemical prices can help improve the company’s profits as the division accounts for 22 percent of sales but 42 percent of earnings before interest and tax.

The previous export ban by India lasted for only two months, this one too cannot be expected to last longer, given the outcry. However, after a long time Reliance can get its day under the sun.