US–Bangladesh Trade Deal Unlikely to Disrupt Indian Cotton Flows, But Price Risks Emerge

🔵 Executive Summary

India’s cotton industry remains divided over the potential impact of the US–Bangladesh trade deal, under which Dhaka has agreed to source American cotton.

While proximity and logistics advantages are expected to sustain Indian shipments, concerns are emerging over price competitiveness — particularly against cheaper Brazilian cotton and potential tariff-linked incentives favoring US fibre.

Short-term trade flows may remain stable, but export volumes for 2025–26 could fall below earlier projections if competitive pressures intensify.

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📜 Policy Context: What Has Changed?

Under the new US–Bangladesh trade arrangement:

• Bangladesh has committed to sourcing cotton from the United States.

• The agreement may provide tariff advantages tied to apparel exports to the US.

Bangladesh is:

• The largest importer of Indian cotton.

• A major global apparel exporter.

Export destination split for Bangladesh’s garments:

• ~50% to Europe

• ~25% to the United States

This distribution is critical in evaluating potential sourcing shifts.

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🌍 Why Many Stakeholders Expect Limited Impact

1️⃣ Logistics Advantage

India enjoys a strong freight and turnaround advantage:

Shorter transit time reduces:

• Working capital lock-in

• Inventory carrying costs

• Financing burden

Bangladeshi mills, operating under tight liquidity conditions, typically prefer faster shipment cycles.

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2️⃣ Trade Integration & Fiber Compatibility

• Indian cotton is widely used in Bangladesh’s spinning sector.

• Integrated supply chains already exist.

• European apparel buyers may continue preferring established fibre sourcing patterns.

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3️⃣ Current Export Activity

• Cotton Corporation of India (CCI) has recently sold cotton to Bangladesh.

• Export floor prices have been aligned with domestic benchmarks.

• India continues to actively offer export parcels.

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⚠️ Counter View: Price Competitiveness at Risk

Some industry participants warn of downside risks.

Key Concerns:

1️⃣ Tariff Incentive Alignment
If US cotton sourcing helps Bangladesh save an 18% tariff on apparel exports to the US, mills may prioritize American origin fibre.

2️⃣ Brazilian Competition
Brazilian cotton is currently offered at:

• USD 0.68–0.69 per lb

• Equivalent to ~USD 589–602 per candy (Indian equivalent basis)

In contrast, Indian cotton is trading around:

• ~USD 662–675 per candy equivalent

This price gap may encourage substitution.

3️⃣ Export Slowdown Already Visible
India’s cotton exports have slowed in recent months due to regional instability and weaker buying sentiment.

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📊 Export Outlook: Revised Expectations

CAI Export Estimates (2025–26 Season, ending September)

• Initial estimate: 1.5 million bales (170 kg each)

• Previous season: 1.8 million bales

• Exports until January-end: 0.6 million bales

Market participants now suggest total exports may fall closer to 1.0 million bales if Bangladesh demand weakens.

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🧭 CMB Market Interpretation

The US–Bangladesh deal introduces competitive pressure, but structural displacement of Indian cotton appears unlikely in the immediate term.

Key Observations:

• Logistics and working capital advantages favor India.

• European-bound garment exports still anchor Bangladesh’s sourcing mix.

• Brazilian cotton currently poses a greater pricing threat than US cotton.

• Road export restrictions from India remain a short-term operational bottleneck.

Short-Term Outlook:
Trade flows continue, but at softer volumes and negotiated pricing.

Medium-Term Risk:
If US cotton receives structured tariff-linked incentives, India may lose incremental market share.

Price Implication:
Lower exports could weigh on domestic cotton prices.

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📊 Risk Assessment

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📌 Why This Matters Now

• India’s cotton export estimates are already lower year-on-year.

• Bangladesh remains India’s single largest cotton buyer.

• Global cotton trade is increasingly shaped by bilateral trade agreements.

• Brazilian cotton is aggressively priced in Asian markets.

The coming quarter will determine whether sourcing shifts are symbolic or structural.

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🏁 Conclusion

While the US–Bangladesh trade deal introduces a new competitive variable, India’s logistical advantage and established trade ties with Dhaka are expected to cushion immediate disruption.

However, price competitiveness — particularly against Brazil — and tariff-linked sourcing incentives could pressure Indian cotton exports in 2025–26.

Export volumes may fall below earlier projections if pricing gaps persist and policy alignment strengthens US supply access.