India has put an immediate ban on the export of cotton sparking fears of inflation in the cost of the raw material.
Following the ban, which was revealed yesterday, cotton prices crept up 4% and shares in clothing retailers dipped across the board.
India is responsible for about 25% of global cotton production. It is thought the ban was put in place as Indian textile makers are unhappy with domestic prices. Crop disease in several states and strong demand from China has led to shortages in India.
Any jump in prices would come as a major blow to UK clothing retailers as cotton prices have recently normalised and many were expecting to see a margin benefit in the second half of the year.
Big retailers have said risk will be limited to products sourced in Bangladesh and Pakistan, which typically make up a small part of global sourcing, according to Singer Capital Markets analyst Matthew McEachran.
However, China relies heavily on India to supply its cotton for clothing production with 80% of Indian supplies going to the country.
McEachran said: “This ban, if maintained, could have a much wider impact on garment prices as the Chinese could be forced to pay up for supply from other regions. To make up the difference China would need the entire annual US crop and more, for example, so any squeeze could be pronounced.”
The analyst said the ban could potentially have a benefit to retailers such as Mothercare which sources its products from India.