The Hindu Business Line : Cotton yarn market in a tizzy as spinning mills hike prices

THE domestic cotton yarn market is in turmoil yet again. Powered by surging demand in export market, the cotton yarn producers have imparted another dose of price increase on their current month deliveries.

The increase ranges from Rs 6 to Rs 8 per kg and has been across all counts of carded and combed yarns and is applicable for both woven and hosiery yarns, the cotton trade and industry sources said.

The major reasons attributed to the price hike are of course the increase in raw cotton price and also the sustained demand in export of yarn.

Understandably, the increase in the yarn price has drawn protest from the downstream yarn user industry, particularly from the powerloom weavers.

"The current rate hike on yarn effected this month will be too much to bear by the fabric producers in powerloom who are already faced with a barren market for their fabrics. We'll not be able to book any orders for our products by paying such high prices on our raw material, especially when the fabric market continues to remain sluggish," said Mr Easwaramurthy, president of the Coimbatore district powerloom cloth dealers' association. He said it was surprising that the spinning mills should increase the yarn price when the raw cotton prices were either quoting lower or getting stabilised.

There has also been complaints among the weavers in the State's major powerloom clusters such as Palladam, Erode, Komarapalayam and Thiruchengodu that the escalated yarn exports of late have led to reduced availability in the domestic market with mills increasingly showing preference to shift to exports rather than selling in the local market.

The chairman of the Powerloom Development and Export Promotion Council (Pdexcil), Mr Senthil Kumar, blamed the price surge to `substantial' increase in the export of yarn to China, India's competitor in fabrics and garment exports. The higher yarn export to China is made possible by the `subsidy' the exporters received in the form of the 6 per cent DEPB (duty entitlement pass book) rate on their shipment, as there has been no substantial import component involved in cotton yarn production.

The rate is being given only on the basis of `deemed duty incident'. This has enabled the Indian yarn shippers to sell their goods at a discounted price in the export market. "By increasing the yarn shipment to China, we only facilitate our competitor in value-added exports," he said.

On the contrary, he said, the fabric exporters of the domestic powerloom industry, which add value to the yarn used in their fabric conversion, are not compensated in the cost of manufacture. Unlike at the yarn stage, the duty suffered at fabric stage is only partially compensated in the form of the DEPB rate. Of the 10 per cent excise duty on fabric, the DEPB is allowed only on the 8 per cent basic excise duty suffered and the additional excise duty of two percentage points is not covered. Similarly, the 4 per cent sales tax is also not covered for DEPB.