The Hindu Business Line : `Dishonoured' contracts hit cotton yarn shippers

IF 2002 was the year of distress for Indian cotton importers who had to lock horns with overseas shippers on the issue of dishonouring cotton contracts, this year may well turn out to be a problematic one for cotton yarn exporters.

Many cotton yarn exporters are ruing over "unhonoured" contracts they had entered with the importers from the Far-East, especially in Korea and Hong Kong. These importers have failed to open the letter of credit (LC) for the contract they booked with the Indian spinners/cotton yarn shippers, reliable textile industry/trade sources say.

The sources told Business Line that most of these contracts were made in mid-December 2003 or early January when there was spurt in global raw cotton prices amidst lower crop projection and when China went whole hog to import cotton yarn from India on an anticipated shortfall in its domestic cotton output.

Buyers from Korea and Hong Kong are said to have contracted Indian yarn at a peak rate of $3.3 a kg when they hadhoped to receive larger garment/apparel orders from major global suppliers. These buyers spurned the yarn contracts subsequently when the anticipated garment supply orders did not materialise. By then, yarn prices too began to decline to $3-levels, amidst excess supplies indented by them during December 2003 and early January.

The slide in international yarn prices coupled with weakening dollar made Indian yarn shippers' position further untenable. Even if the shippers wanted to reduce their prices, the problem, according to cotton yarn trade sources, at least 30 to 40 per cent of the contracts turned out to be bad ones.

Yarn exporters and exporting mills, who had bought domestic cotton at high prices in the price band of Rs 25,500/Rs 26,000 per candy (355.56 kg), now find themselves caught between falling yarn export prices and sobering domestic cotton prices.

It is also believed that since there has been no forum available for these shippers to represent their issue, they have been forced to stomach the failed contracts.

The sources said one of the major factors for the yarn export debacle faced by the Indian suppliers at the beginning of the year was the overheated international yarn market fuelled by high hopes on a demand surge for cotton textiles/apparels shipment from US and other major buying countries from EU.

This also forced the yarn buyers from the Far-Eastern markets to resort to booking huge shipments from India but the former could not use the yarn stocks at the expected levels as the anticipated orders failed to realise.

Luckily, the domestic yarn market has been offering some support to the spinners who could see some offtake. Considering the difficulty to push the product, the spinners have reduced the yarn price in the local market by Rs 3 a kg for this month, market sources said.

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`Dishonoured' contracts hit cotton yarn shippers